Content area
Full Text
Summary:
The research conducted by the author and presented in the paper are based on 20 hedge funds that use event driven investment strategies. They were chosen at random from the data base prepared by BardayHedge and Global Fund Technologies which hsts about 2000 hedge funds applying different investment strategies. The analysis presented in the paper is a part of wider research done by the author for over 200 hedge funds, dividing them into groups according to the investment strategies practised by them. The purpose of the research is to measure hedge funds performance in 2007 and 2008 that is during the bull and the bear market. The S&P500 index is playing a role of a benchmark. The paper shows that the majority of institutions whose aim is to generate positive rates of return irrespective of the market situation, thus also during the bear market, did not do so during unfavorable market conditions. The research comprises such measures as: rates of return, risk measured by standard deviation, risk measured by beta, the level of alpha, the correlation of the examined funds with traditional assets and the Sharpe ratio. In the first part of the paper the author gives the detailed characteristics of investment strategies used by the examined event driven hedge funds.
Key words: hedge funds, bear market, bull market, rate of return
HEDGE FUNDS AS AN ALTERNATIVE INVESTMENT
Alternative investments become more and more popular owing to the possibüities of portfolio diversification that they give. They include for example: private equity/venture capital, management buy-outs, structured products, gold and coins markets, art banking or hedge funds that are the core of the paper.
Hedge funds are lightly regulated active investment vehicles with great trading flexibility. They are believed to pursue highly sophisticated investment strategies, and promise to deliver returns to their investors that are unaffected by the vagaries of financial markets. The assets managed by hedge funds have grown substantiaUy over the past decade, increasingly driven by portfolio aUocations from institutional investors.1
Hedge funds foUow different strategies and hence their return characteristics differ considerably. Hedge fund data have a number of peculiarities in comparison to say mutual fund data. The high entry and attrition rates create biases in the index of hedge fund...