On Jul 15, 2008, at 5:11 PM, Jim Devine wrote:
http://www.marxist.com/hedge-funds-speculation-and-capitalism.htm
The author (Mick Brooks) should make it clearer that "Hedge Funds" are
not really in the business of "hedging" (where the latter refers to
the way a farmer tries to avoid the downside risk that the crop will
be worth less in the fall). Instead, "Hedge Funds" are speculating
More important than the naming issue is this claim: "The attraction
for rich people in ‘investing’ in hedge funds is that they promise,
and deliver, returns of 30% a year." Sometimes they do; most of the
time they don't. E.g.:
<http://papers.ssrn.com/sol3/papers.cfm?abstract_id=924242>
How Smart are the Smart Guys? A Unique View from Hedge Fund Stock
Holdings
JOHN M. GRIFFIN
University of Texas at Austin - Department of Finance
JIN XU
University of Texas at Austin - Department of Finance
March 2007
AFA 2008 New Orleans Meetings Paper
Abstract:
We provide the first comprehensive examination of hedge funds' long-
equity positions and the performance of these stock holdings.
Compared to mutual funds, hedge funds have higher turnover, weights
further away from the market portfolio, prefer smaller opaque
securities, and their trading moves slightly in front of mutual
funds. However, despite their active trading nature, aggregate
hedge fund trading and holdings are not beneficial in predicting
the cross-section of future stock returns, indicating that on
average hedge fund long-equity positions are not informed.
Decomposing returns into three components, we find some weak
statistical evidence on a value-weighted basis that hedge funds are
better at stock picking (1.32 percent per year) than mutual funds,
but this result is driven by tech stock holdings in 1999 and 2000
and becomes statistically insignificant if looking at equal-
weighted performance or with price-to-sales benchmarks. The sector
timing ability and average style choices of hedge funds are no
better than that of mutual funds. Additionally, we fail to find
differential ability between hedge funds. Overall, our study raises
serious questions about the proficiency of hedge fund managers.
_______________________________________________
pen-l mailing list
[email protected]
https://lists.csuchico.edu/mailman/listinfo/pen-l
