Working Papers


John Cassidy of The New Yorker profiles Harry Kat, who maintains:

It is possible to design mechanical futures-trading strategies which generate returns with the same, and often better, risk-return properties as hedge funds.

The trading strategies employed by some hedge funds are based on little more than glorified technical analysis within the framework of an overall capital management strategy.  To that extent, Kat’s results should not be entirely surprising.

posted on 03 July 2007 by skirchner in Economics, Financial Markets

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If one defines a hedge fund as a fund with the ability to borrow as well as sell short, then presumably the value of a hedge fund depends on the more general question of whether it is possible for investors to systematically outperform the index. If it is, then a hedge fund could produce even greater outperformance than a conventional manager. If it is not, then presumably a hedge fund could do even worse.

Posted by .(JavaScript must be enabled to view this email address)  on  07/04  at  02:15 PM

Hedge funds make much greater use of leverage and short-selling than other managed funds, but that is really only a matter of degree.  In Australia at least, there are also no differences in the way they are regulated.  The appropriate benchmark for a hedge fund is a difficult question, because what sets them apart is that they seek returns that are uncorrelated with other asset classes.

Posted by skirchner  on  07/05  at  11:19 AM

Then is the question of whether they have better risk-return properties than other funds important?

Posted by .(JavaScript must be enabled to view this email address)  on  07/05  at  11:24 AM

Still important, but since they define themselves as “absolute” return funds, the question of relative performance is more complicated than usual.  The more appropriate benchmark is whether the fund’s strategy delivered the objectives the manager set for it.

Posted by skirchner  on  07/05  at  11:38 AM

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