wanganjie

 

6、Which of the following statements best describes hedge funds use of leverage?

A) No hedge funds use leverage.

B) Only statistical arbitrage funds use leverage.

C) Only equity market-neutral funds use leverage.

D) Most hedge funds use leverage.

wanganjie

 

The correct answer is D

Most hedge funds do use some form of leverage.

wanganjie

 

AIM 2: Discuss the growth of hedge funds, particularly long/short equity funds, and its effect on performance, leverage and potential for greater systemic risk.

1、A simulated long/short market neutral equity strategy using data from August 2007 reveals:

A) mean reverting losses and profits for August 7 and 8, followed by a large loss on August 9 and large profit on August 10.

B) significant losses for the entire week of August 6.

C) significant losses for August 7, 8, and 9 followed by a significant profit on August 10. 

D) significant profits for the entire week of August 6, followed by large losses the following two weeks.

wanganjie

 

The correct answer is C

The cumulative three-day loss for August 7 through August 9, 2007 for a simulated long/short market neutral equity strategy was -6.85%, followed by a 5.92% reversal on August 10, 2007 for the full sample of simulated data.

wanganjie

 

2、Which of the following statements is (are) CORRECT regarding hedge fund categories?

I.           The long/short equity is the broadest class.

II.         Statistical arbitrage entails a focused number of securities.

III.        Quantitative equity market-neutral is more focused than Statistical Arbitrage.

A) II only.

B) II and III.

C) I only.

D) I, II and III.

wanganjie

 

The correct answer is C

Statement I is correct. Long/short is the broadest class (in fact all of the strategies can be described as some form of long/short). Statistical arbitrage entails a broad number of securities. Quantitative equity market neutral is broader than statistical arbitrage.

wanganjie

 

3、Hedge funds are classified into many different categories depending upon the fund’s strategy. Evaluate which of the following statements are CORRECT regarding hedge fund trading strategies.

I.           Statistical arbitrage funds trade a large amount of securities, use extremely brief holding periods, and use large infrastructure involving calculations, computer trades and technical trading systems.

II.         Quantitative equity market-neutral is broader in scope than statistical arbitrage, as it involves more quantitative models, not as many securities, forecasts of earnings, and economic indicators.

III.        Long/short equity encompasses the most portfolios, those that use short selling, and are indiscriminate of being market-neutral, quantitative, or technology-based. This category of funds is the largest both in terms of market value and number of funds.

IV.      Quantitative-based 130/30 strategy (or active extension strategy) funds are the fastest growing. Funds in this subsection allow a limited divergence from the traditional long-only strategy. These funds are generally assembled by a quantitative mechanism.

A) I, III and IV.

B) II, III and IV.

C) I, II and III.

D) I, II, III and IV.

wanganjie

 

The correct answer is D

All of the statements are correct.

wanganjie

 

4、Empirical research on hedge funds faces some special data considerations. Which of the following statements are CORRECT regarding the difficulties in the assessment of hedge fund performance?

I.           Hedge fund returns can be both positively and negatively correlated to one anther due to the extensive use of short positions.

II.         The TASS database contains only entities that have voluntarily entered their information.

III.        Hedge fund returns are based upon an international benchmark standard.

IV.      Hedge funds are risk-free investments.

A) I, II, III and IV.

B) I and II.

C) II and III.

D) I and III.

wanganjie

 

The correct answer is Bfficeffice" />

Statements I and II are correct. Returns can be increasing as the market moves up or down, due to the fund’s short positions. Also, hedge funds in the TASS database voluntarily provide their information.