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Hedge funds: A bang for the buck?
University West, Department of Economics and IT, Divison of Law, Economics, Statistics and Politics.
University West, Department of Economics and IT, Divison of Law, Economics, Statistics and Politics.
2017 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

Hedge funds are an investment alternative that has become more available to retail investors, it is a segment in the financial sector that now manage over 2000 billion USD. A key factor to it is increased popularity is due to the substantial decrease in minimum investment, making it a more considerable alternative for the average investor. With the latest year’s volatile markets, one could understand that the fundamental structure of a hedge fund seems lucrative, being able to hedge their portfolios in declining markets. These advantages do not come without a price and hedge fund are known to take the highest management fees in the business, allowing for successful hedge fund managers to obtain some of the highest salaries on this plant. Are these salaries justified due to abnormal returns?

To answer this questions as comprehensive as possible, we first conducted a test for the random walk hypothesis, exploring if it is possible to predict market movements. Finding this possible, we proceeded to test for how well European and North American hedge fund managers have performed overall.

Testing for excessive return over relevant benchmark indices by performing tests for the capital asset pricing model, Jensen’s alfa and the Fama and French three factor model to validate the results even further. With all tests concluding that hedge fund managers succeed to outperforming their benchmark indices. We later conducted tests for both the Sharpe and Treynor ratio to interpret how much of a risk-adjusted abnormal return the hedge fund managers achieved.

Place, publisher, year, edition, pages
2017. , 30 p.
Keyword [en]
Hedge fund performance, management fees, abnormal return, benchmark, overall market
National Category
Economics
Identifiers
URN: urn:nbn:se:hv:diva-11368Local ID: NAX500OAI: oai:DiVA.org:hv-11368DiVA: diva2:1134525
Subject / course
Nationalekonomi
Educational program
Mäklarekonom
Supervisors
Examiners
Available from: 2017-08-21 Created: 2017-08-21 Last updated: 2017-08-21Bibliographically approved

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Citation style
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  • en-US
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