Jack L. Treynor Volume 10, Number 2, Second Quarter 2012 View PDF… Read more
Special Issues
The Downside of High Water Marks: An Empirical Study
Sugata Ray Volume 10, Number 2, Second Quarter 2012 Using a large sample of hedge funds, I study the effects of the high water mark (HWM) on fund performance, risk, and fund closure. I find that as funds fall below the HWM, the standard deviation of future returns increases, the future expected Sharpe ratio decreases… Read more
Insights: On the Kurz Model of Asset Prices with Rational Beliefs
Craig W. French Volume 10, Number 2, Second Quarter 2012 Mordecai Kurz has proposed an asset pricing model incorporating endogenous uncertainty. Kurz contrasts Rational Belief Equilibrium (RBE) with the more familiar theory of Rational Expectations Equilibrium (REE). In RBE, the aggregate market will generally misprice assets and stock returns can be explained by forecasting mistakes… Read more
Hedge-Fund Performance and Liquidity Risk
Ronnie Sadka Volume 10, Number 2, Second Quarter 2012 This paper demonstrates that liquidity risk as measured by the covariation of fund returns with unexpected changes in aggregate liquidity is an important predictor of hedge fund performance. The results show that funds that significantly load on liquidity risk subsequently outperform low-loading funds by about 6.5%… Read more
Asset Allocation Dynamics in the Hedge Fund Industry
Li Cai and Bing Liang Volume 10, Number 2, Second Quarter 2012 This paper examines asset allocation dynamics of hedge funds through conducting optimal change point test on an asset class factor model. Based on the average F-test and the Bayesian Information Criterion (BIC), we find that more dynamic hedge funds exhibit significantly better quality… Read more
Liquidity Shocks and Hedge Fund Contagion
Nicole M. Boyson, Christof W. Stahel and René M. Stulz Volume 10, Number 2, Second Quarter 2012 In Boyson, Stahel, and Stulz (2010), we investigate whether hedge funds experience worst return contagion that is, correlations in extremely poor returns that are over and above those expected from economic fundamentals. We find strong evidence of contagion… Read more
PRACTITIONER’S DIGEST
Volume 10, Number 2, Second Quarter 2012 View PDF… Read more
CROSSOVERS & SURVEYS – The Libor/SABR Market Models: A Critical Review
Sanjay K. Nawalkha Volume 8, Number 3, Third Quarter 2010 This paper reviews the LIBOR market model (LMM) and the LMM-SABR model. While a plethora of interest rate models, such as fundamental models, single-plus models, double-plus models, and triple-plus models, can be used for valuation of plain vanilla derivatives, only a few models such as… Read more
The Asset Growth Effect in Stock Returns
Michael J. Cooper, Huseyin Gulen and Michael J. Schill Volume 8, Number 3, Third Quarter 2010 We document a strong negative relationship between the growth of total firm assets and subsequent firm stock returns using a broad sample of U.S. stocks. Over the past 40 years, low asset growth stocks have maintained a return premium… Read more
BOOK REVIEWS: Active Credit Portfolio Management in Practice
Active Credit Portfolio Management in Practice Jeffrey R. Bohn and Roger M. Stein Reviewed by Cel Kulasekaran View PDF… Read more