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Finance 3000 5day - Essay Example

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This dissertation explores the various strategies, quality measurement methods, risk analysis, and quantitative methods used by investment managers. A comprehensive definition of hedge funds is also contained herein. Thereafter is a description of how they managers implement various strategies to gain profits, recover losses, avoid losses, as well as maintain an inflow of income. This dissertation also details various risk functions and how they are used to ensure that to predict the market’s reaction as well as results after certain possible events. Defining Hedge Funds A hedge fund is a privately owned and managed investment (Goldberg & Korajcsyk, 2010). Such a fund would invest in a wide range of elements. This would include various strategies, markets, and investment methods. Hedge funds provide the investor a means by which he/she can comfortably navigate market rules. However, the fund is not autonomous. The fund manager has to follow specific rules set aside for hedge funds. Each country has specific rules that govern the hedge fund systems (Alexander, 2008). Hedge funds have a particularly characteristic of being open-ended. The investor has room to add to the investment or withdraw all together. This is unlike other custom funds that only allow specific times for addition and withdrawal (Chavas, 2004). Other funds also have specific categories within which they allow certain amounts of withdrawal or addition. The calculation of a hedge fund value involves the use of the asset value. Each fund has a specific net value. This value helps determine the share value of the fund. Hedge funds are like mutual funds for the rich. This is because for one to participate in hedge fund, the investor needs to meet certain requirements. They need to have a particular experience in investment and have to have certain net value. This locks out the commoner from engaging in hedge funds. Hedge funds are playground for sophisticated investors. Hedging is an investment method that reduces the risk while increasing return on investment. However, this is part truth. Modern day hedging makes use of several other strategies. Such strategies include aggressive growth, funds of funds, and market timing (Alexander, 2008a). There are many more strategies employed by hedge fund managers. One thing that is common among all hedge funds is specialization. Each hedge fund manager has his or her strength and weakness (Agarwal & Naik, 2005). It is obvious that one would have to rely mainly on their own strength. This means that a manager would apply his or her own expertise in managing the fund. This results in the fund having special characteristics. The managers are very professional and deliver on their promises. They perform their duties exemplarily thus being awarded the opportunity to manage such large sums of money. Investment Strategies used by Hedge funds Hedge funds employ several strategies. One of the main strategies involves aggressive growth. In this strategy, the manager would find equities expected to grow aggressively, and he/she would invest in them (Lerner, 1995). Aggressive growth is with respect to earnings per share. The P.E ratios for such equities are often high while the dividend are meager or not present at all. Small cap stocks often experience rapid growth. This is because they are often specialized into banking, technology, or biotechnology. The means for hedging in such a strategy are by shorting equities with poor projections. This type of strategy is highly volatile and ...Show more
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Summary

Corporate & Financial Risk Analysis Institution Date Table of Contents Introduction 3 Risk Functions and their use in MATLAB 12 References 16 Introduction Corporate and financial risk analysis involves the use of various strategies to and method…
Finance 3000 5day
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