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LOS s: Critique the conventions and special issues involved in hedge fund performance evaluation, including the use of hedge fund indices and the Sharpe ratio. ffice ffice" />
Q1. When evaluating hedge funds, special issues that complicate the process would include the fact(s) that:
A) benchmarks are absolute return in nature and do not address other goals such as the elimination of systematic risk.
B) benchmarks are designed to be both long and short in nature, but most hedge funds are long only.
C) many hedge funds are absolute return vehicles for which no benchmark exists, and they can use long/short strategies while most benchmarks are long only in nature.
Correct answer is C)
These are two problems in defining and creating benchmarks. One method for addressing problems in defining and creating benchmarks is the use of single and multi-factor models. Thus, factor models do not pose a complication but offer a solution.
Q2. When evaluating the performance of a hedge fund that uses leverage, the convention is to:
A) not attempt to evaluate the fund because the existence of leverage makes such an assessment impossible.
B) use an optimization model to determine the weights on the book and debt values.
C) treat an asset as if it were fully paid to effectively “look through” the leverage.
Correct answer is C)
The conventions for dealing with leverage is to treat an asset as if it were fully paid to effectively “look through” the leverage. When derivatives are included, the same principle of deleveraging is applied.
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发表于 2009-3-11 10:13
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