[2008] Topic 78: What Happened to the Quants in August 2007? 相关习题 sharp, statements, following, regarding

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AIM 1: Explain how liquidity and leverage may have played a role in the sharp losses quantitative hedge funds experienced in early 2007.

1、Which of the following statements is consistent with the “unwinding” hypotheses regarding the losses of long/short quantitative hedge funds in August 2007?

A) The third week of August exhibited a mean-reversion process with large positive gains.

B) The reversal on August 10 limited the losses of large short/term hedge funds that experienced losses earlier in the week.

C) The smallest decile market capitalization firms experienced the most volatile shifts in return the second week of August relative to larger firms.

D) Long/short equity funds de-levered their portfolios simultaneously on August 7 and 8.

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The correct answer is D

Long/short equity funds de-levered their portfolios simultaneously on August 7 and 8. Margin calls were set in place on August 9 due to the decreasing net asset values of hedge funds the previous two days. Most hedge funds did not participate in the August 10 reversal because they were forced to liquidate their positions.

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2、A simulated test of the unwinding hypothesis examining long/short equity strategies during August 2007 suggests:

A) portfolios constructed with the largest decile market capital firms were not impacted by the events of August 2007.

B) the largest losses were associated with portfolios constructed with middle decile market capital firms. 

C) little support for the unwinding hypothesis.

D) after large losses on August 7 and 8 the trading strategies had large profits on August 9.

wanganjie

 

The correct answer is B

The middle deciles based on market capitalization have an optimal tradeoff of liquidity and profitability and thus are more likely targets of long/short quantitative strategies. Consistent with the unwinding hypothesis, the largest losses were associated with this group.

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3、The rapid liquidation of large long/short equity fund positions in August of 2007 was most likely the result of:

A) an increased use of leverage in long/short equity funds due to declining profits over the past decade.

B) a decrease in the number of market participants due to declining profits over the past decade.

C) a decrease in liquidity caused by fewer funds and competitors in the industry.

D) a growing number of hedge funds in an overcrowded market due to the increased expected returns in the industry over the past decade.

wanganjie

 

The correct answer is A

In August of 2007, a number of large long/short equity funds using increasingly higher leverage ratios were forced to liquidate quickly to satisfy margin calls with adverse market price changes.

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4、Which of the following is NOT a potential factor explaining the magnitude of the large quantitative fund losses according to the unwinding hypothesis?

A) Growth in assets under management in long/short equity funds.

B) Increasing profits to quantitative equity market-neutral strategies over the past decade.

C) Increasing leverage used in quantitative long/short equity funds.

D) Lack of awareness of increased crowding of long/short equity funds.

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The correct answer is B

Profits in long/short equity funds have declined over the past decade due to increased competition, technological advances, and institutional and environmental changes.

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5、Which of the following is NOT a caveat associated with the hypotheses examining the August 2007 losses in long/short equity funds?

A) There has never been a similar crisis resulting in losses to a specific market sector such as long/short equity funds.

B) The hypotheses are based on indirect evidence due to the lack of proprietary data regarding hedge funds.

C) There has been little time to examine and form hypotheses regarding the August 2007 events.

D) There is a lack of transparency of hedge funds.

wanganjie

 

The correct answer is A

The market events of August 2007 are similar to the market events of August 1998 when Russia defaulted on its GKO government bonds that led to a global flight to quality and the fall of Long-Term Capital Management (LTCM).