Alternative Beta Strategies and Hedge Fund Replication by Lars Jaeger

By Lars Jaeger

There s a buzzword that has speedy captured the mind's eye of product companies and traders alike: "hedge fund replication". within the broadest experience, replicating hedge fund options potential replicating their go back assets and corresponding possibility exposures. although, there nonetheless lacks a coherent photograph on what hedge fund replication potential in perform, what its premises are, tips on how to distinguish di erent techniques, and the place this may lead us to.

Serving as a instruction manual for replicating the returns of hedge money at significantly lower price, Alternative Beta thoughts and Hedge Fund Replication presents a distinct specialize in replication, explaining alongside the way in which the go back resources of hedge cash, and their systematic dangers, that make replication attainable. It explains the history to the recent dialogue on hedge fund replication and the way to derive the returns of many hedge fund recommendations at a lot lower price, it differentiates many of the underlying methods and explains how hedge fund replication can enhance your individual funding approach into hedge funds.

Written through the well-known Hedge Fund professional and writer Lars Jaeger, the ebook is split into 3 sections: Hedge Fund history, go back assets, and Replication innovations. part one offers a quick direction in what hedge cash truly are and the way they function, arming the reader with the heritage wisdom required for the remainder of the e-book. part illuminates the resources from which hedge money derive their returns and indicates that almost all of hedge fund returns derive from systematic danger publicity instead of supervisor "Alpha". part 3 provides numerous techniques to replicating hedge fund returns by way of proposing the 1st and moment new release of hedge fund replication items, issues out the pitfalls and strengths of a few of the techniques and illustrates the mathematical thoughts that underlie them.

With hedge fund replication going mainstream, this booklet offers transparent counsel at the subject to maximize returns.

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Example text

Soros continues to manage his own money and allocates to a few outside managers. But he became more broadly known as an author, capitalism critic, and humanitarian. ’, the first futures-based investment program in commodity markets and pioneered a technical trading method today known as ‘trend following’. 32 Around this time, ‘managed futures’ strategies were more broadly developed by what today are referred to as ‘commodity trading advisors’ (CTAs). In 1965, Dunn and Hagitt started trading commodity futures using technical trading systems.

Fung and D. Hsieh; In Search of Alpha by A. Ineichen (2000); ‘The performance of hedge funds: risk return, and incentives’ by C. Ackermann et al. (1999); ‘On taking the “alternative” route: the risks, rewards, and performance persistence of hedge funds’ by V. Agarwal and N. ’ by G. Amin and H. Kat (2001); ‘On the performance of hedge funds’ by L. Bing (1999); ‘Hedge fund performance: 1990–1999’ by L. Bing (2001); ‘Hedge fund performance and P1: JYS c02 JWBK289-Jaeger August 18, 2008 8:47 Printer: Yet to come What Are Hedge Funds 31 a combination of stocks and bonds) includes only two general return sources, that is the equity risk premium and (interest rate) term structure risk premium.

A company bankruptcy or negative earning outlook leading to a decline of a particular company’s stock). According to capital asset pricing theories, exposure to systematic risks is rewarded with expected excessive return, the risk premium. Asset pricing theory also refers to these returns as ‘beta returns’. In contrast, nonsystematic risks, that can be diversified by the investors, do not yield expected excess return and should therefore be avoided. Hedge fund replication builds on the premise that a large part of the return sources of hedge funds are risk premia and outlines what the underlying systematic risks are.

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