Jasmina Hasanhodzic and Andrew W. Lo Volume 5, Number 2, Second Quarter 2007 In contrast to traditional investments such as stocks and bonds, hedge-fund returns have more complex risk exposures that yield additional and complementary sources of risk premia. This raises the possibility of creating passive replicating portfolios or \clones” using liquid exchange-traded instruments that… Read more
Special Issues
BOOK REVIEWS: Louis Bachelier’s Theory of Speculation
Volume 5, Number 3, Third Quarter 2007 Mark Davis and Alison Etheridge Reviewed by Hans-Christian Luedmann View PDF… Read more
Performance-Based Fees and Risk Shifting with the Knockout Barrier
Xiaodong Xu and Bernd Scherer Volume 5, Number 3, Third Quarter 2007 Many investment firms reward portfolio managers based on their performance. This article investigates a manager’s optimal active risk policy using stochastic programming techniques. Our multiple-period model incorporates the most common incentive-fee structures, and captures the risk that the manager is fired for underperformance… Read more
Active 130/30 Extensions: Alpha Hunting at the Fund Level
Martin L. Leibowitz and Anthony Bova Volume 5, Number 3, Third Quarter 2007 Active equity strategies that are highly benchmark-centric will generally have a minimal impact on fund-level volatility. Since most US institutional portfolios are overwhelmingly dominated by their equity exposure, any incremental tracking error will be submerged by the beta effect. Positive alpha opportunities… Read more
On the Relative Performance of Multi-Strategy and Funds of Hedge Funds
Vikas Agarwal and Jayant R. Kale Volume 5, Number 3, Third Quarter 2007 Recently, there has been explosive growth in two products from the hedge fund industry multi-strategy (MS) funds and funds of hedge funds (FOFs), both of which offer diversification across different hedge fund strategies. In well functioning markets, both investment vehicles should offer… Read more
What Every Investor Should Know About Commodities Part II: Multivariate Return Analysis
Harry M. Kat and Roel C. A. Oomen Volume 5, Number 3, Third Quarter 2007 In this paper, we study the multivariate return properties of a large variety of commodity futures. We find that between commodity groupings (such as metals, energy, etc.) correlations are very low and mostly insignificant whereas within groups they tend to… Read more
INSIGHTS: Will the Phillips Curve Cause WWIII?
Jack L. Treynor Volume 5, Number 3, Third Quarter 2007… Read more
CASE STUDIES: Rivalry at Appleton-Pearson
Jack L. Treynor Volume 5, Number 2, Second Quarter 2007 View PDF… Read more
SURVEY OF THE LITERATURE: Credit Default Swap Spreads
Sanjiv R. Das and Paul Hanouna Volume 4, Number 3, Third Quarter 2006 We review the literature on credit default swap spreads, which are fast replacing bond spreads as source data for analyzing and predicting credit risk. We review results that examine the basis, i.e. the difference between bond and CDS spreads, enabling the extraction… Read more
CASE STUDIES: Gas Caps and the Sherman Act
Jack L. Treynor Volume 4, Number 3, Third Quarter 2006 View PDF… Read more