Reading 73: Alternative Investments Losl习题精选 available, 2010, however, required, included

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LOS l: Discuss the performance of hedge funds and the biases present in hedge fund performance measurement.

Hedge funds are generally not required to publicly disclose their performance, however, some managers choose to make performance information available to the public. This information is then included in hedge fund indexes and some conclusions about the performance of hedge funds can be drawn. Which of the following statements regarding hedge fund performance is least accurate?

A) When measured by standard deviation, hedge funds are less risky than traditional equity investments.

B) In recent years, the Sharpe ratio for hedge funds has been comparable to that of fixed income investments.

C) The reported volatility of hedge fund returns may be higher than the actual volatility of returns.

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Many assets that are included in a hedge fund portfolio are not actively traded. Managers utilize estimates to report the market value and performance of their hedge funds. Using estimates rather than actual market transactions may result in smoothed pricing, thereby reducing reported volatility. Both remaining statements are true.

[此贴子已经被作者于2010-4-27 13:30:35编辑过]

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Which of the following statements regarding survivorship bias in hedge funds is most accurate? Survivorship bias tends to:

A) overstate both the performance and volatility of hedge funds.

B) understate the performance and overstate the volatility of hedge funds.

C) overstate the performance and understate the volatility of hedge funds.

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Survivorship bias exists because only the successful hedge funds submit performance data, thus overstating performance when the index is considered to be representative of the entire hedge fund population. Likewise, stable funds tend to succeed, while more volatile funds tend to go out of business, causing the database to tend to understate volatility for hedge funds as an asset class.

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Survivorship bias is acute with hedge fund databases because hedge:

A) funds experience higher volatility of returns than traditional investments.

B) funds are more highly leveraged than other asset classes.

C) fund managers often do not have to comply with performance presentation standards.

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The main reason behind the survivorship bias problem in hedge fund reporting is that hedge funds are exempt from most SEC regulations, including performance presentation standards. This lack of standards leads to many inconsistencies in reporting that are not present in other asset classes.

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Only successful, ongoing hedge funds are included in hedge fund databases. The resulting inflation of reported hedge fund performance can be best described as:

A) asymmetrical returns.

B) self-selection bias.

C) survivorship bias.

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Asymmetrical returns refers to the option-like return profiles that result from some hedge fund strategies. Self-selection bias reflects the fact that submission of data by fund managers is voluntary, and they tend to submit only impressive results. Survivorship bias does result from the fact that only successful hedge funds with ongoing operations are included in databases, thus putting an upward bias on the returns of hedge funds as an asset class.

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The fee structure of a hedge fund may lead to biases in performance data because:

A) fund managers have incentives to take big risks if past performance has been poor.

B) hedge fund managers are not required to disclose information regarding fee structures.

C) hedge fund managers charge higher fees than managers of traditional funds.

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Hedge fund managers have the potential to earn more than managers of traditional funds, but this does not bias performance data. Hedge fund managers typically receive a modest base fee (1%) and then a large incentive fee based upon performance. If past performance has been poor, then fund managers feel they have “nothing to lose” and may invest more aggressively.

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Which of the following statements regarding hedge fund performance is FALSE?

A) Hedge funds have demonstrated a lower risk profile than traditional equity investments.

B) The Sharpe ratio for hedge funds has been consistently higher than for most traditional equity investments.

C) Hedge funds have historically underperformed the S& 500.

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Hedge funds have demonstrated a lower risk profile than equities when measured by standard deviation. The Sharpe ratio, which is a reward-to-risk ratio, has been higher for hedge funds than for equities. Hedge funds have historically outperformed the S& 500.

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Biases in hedge fund performance measurement are least likely to include:

A) correlation bias.

B) incomplete historical data.

C) smoothed pricing.

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The six most common biases present in hedge funds are:

“Cherry Picking” by managers.

Incomplete historical data.

Survival of the fittest.

Smoothed pricing.

Asymmetrical returns.

Fee structures and incentives.

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Hedge fund performance data suffers from serious biases that can be attributed to the fact that:

A) fund managers tend to submit only favorable performance data.

B) there is not a reliable index that tracks hedge fund performance.

C) hedge funds as an asset class have not been in existence long enough to have meaningful performance data.

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Hedge funds have been in existence since the early 1990’s, long enough to compile meaningful data. There are several reliable indexes designed to track hedge funds. One of the primary reasons why performance data has biases is that submission is strictly voluntary, so managers tend to only submit impressive performance information.