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Alternative Beta Strategies and Hedge Fund Replication
John Wiley and Sons Ltd, Sep 2007, Pages: 272
It has long been recognized that a main part of a Hedge Funds s return corresponds to risk premiums rather than market inefficiencies, i.e. from beta instead of alpha. This has some implication for the industry, among which the most striking is the endeavor to construct investable benchmarks for hedge funds on the basis of an analysis of the underlying systematic risk factors and a subsequent replication of the corresponding risk premiums with generic trading systems.
This book reflects on this most recent and increasingly popularized discussion within the global hedge fund industry on replicating hedge funds, a topic that has the potential turn the hedge fund industry upside down. It provides a thorough overview of the latest practices in hedge fund replication and alternative beta strategies in the constantly changing world of hedge fund investing, and describes and addresses the opportunities and challenges that lie therein.
- Introduction - Overview and development of the hedge fund industry
- Description of individual strategies: The details on the various strategies qualitative overview
- Quantitative properties of hedge funds: The statistics of hedge funds
- The question of hedge fund returns sources: Separating Alpha and Beta
- Standard approaches to hedge fund return modelling: Developing first hedge models
- Different approaches to replicating hedge funds: From linear factor models to rule based approaches
- The road toward developing true hedge fund indices: From peer group averages to hedge fund risk premium benchmarks
- Implications for hedge fund portfolio management: The core satellite approach
There s a buzzword that has quickly captured the imagination of product providers and investors alike: 'hedge fund replication'. In the broadest sense, replicating hedge fund strategies means replicating their return sources and corresponding risk exposures. However, there still lacks a coherent picture on what hedge fund replication means in practice, what its premises are, how to distinguish di erent approaches, and where this can lead us to.
Serving as a handbook for replicating the returns of hedge funds at considerably lower cost, Alternative Beta Strategies and Hedge Fund Replication provides a unique focus on replication, explaining along the way the return sources of hedge funds, and their systematic risks, that make replication possible. It explains the background to the new discussion on hedge fund replication and how to derive the returns of many hedge fund strategies at much lower cost, it differentiates the various underlying approaches and explains how hedge fund replication can improve your own investment process into hedge funds.
Written by the well known Hedge Fund expert and author Lars Jaeger, the book is divided into three sections: Hedge Fund Background, Return Sources, and Replication Techniques. Section one provides a short course in what hedge funds actually are and how they operate, arming the reader with the background knowledge required for the rest of the book. Section two illuminates the sources from which hedge funds derive their returns and shows that the majority of hedge fund returns derive from systematic risk exposure rather than manager 'Alpha'. Section three presents various approaches to replicating hedge fund returns by presenting the first and second generation of hedge fund replication products, points out the pitfalls and strengths of the various approaches and illustrates the mathematical concepts that underlie them.
With hedge fund replication going mainstream, this book provides clear guidance on the topic to maximise returns.
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