文档介绍：The Risk in Hedge Fund Strategies:
Theory and Evidence from
Trend Followers
William Fung
PI Asset Management, LLC
David A. Hsieh
Duke University
Hedge fund strategies typically generate option-like returns. Linear-factor models using
benchmark asset indices have difficulty explaining them. Following the suggestions in
Glosten and Jagannathan (1994), this article shows how to model hedge fund returns by
focusing on the popular “trend-following” strategy. We use lookback straddles to model
trend-following strategies, and show that they can explain trend-following funds’ returns
better than standard asset indices. Though standard straddles lead to similar empirical
results, lookback straddles are theoretically closer to the concept of trend following. Our
model should be useful in the design of performance benchmarks for trend-following
funds.
The last decade has witnessed a growing interest in hedge funds from
investors, academics, and regulators. Investors and academics are intrigued
by the unconventional performance characteristics in hedge funds, and reg-
ulators are concerned with the market impact of their reported speculative
activities during major market The near bankruptcy of Long-Term
Capital Management (LTCM) in 1998 has further heightened attention on
hedge fund risk. Because hedge funds are anized as private
investment vehicles for wealthy individuals and institutional investors,2 they
do not disclose their activities publicly. Hence, little is known about the
This article received research support from the Foundation for Managed Derivatives Research and John W.
Henry & Company. We acknowledge the New York Mercantile Exchange, the London International Financial
Futures Exchange, the Sydney Futures Exchange, and the Tokyo International Financial Futures Exchange
for providing their historical data; thanks to James Cui and Guy Ingram putational assistance. An
earlier version benefited ments by