Hedge Funds Are Essay

Pages: 3 (1282 words)  ·  Style: Harvard  ·  Bibliography Sources: 10  ·  File: .docx  ·  Level: College Senior  ·  Topic: Economics

Therefore, the long/short strategies are applicable to market-cap-specific stocks where everyone is attempting to differentiate themselves. Generally, the long/short strategy is market directional while the market-neutral strategy is non-directional as managers don't understand the general market direction (Inglis, n.d.). Moreover, the long/short strategies require the use of a low degree of leverage as compared to the other equity base strategies.

Unlike other hedge fund strategies, global macro has the highest profiles of risk or return as they usually place directional bets on prices of basic assets and are normally highly leveraged. Due to their global perspective, these strategies are appropriate for large markets and contain diversity of investments. While merger / risk arbitrage contains a range of risks and financing risks, the market for distressed securities tend to be illiquid and inefficient because of various factors. The sale of a company's distressed securities may be prohibited when the firm is undergoing restructuring. On the other hand, merger/risk arbitrage is suitable when there is a possibility of a successful merger. The opportunities for merger arbitrage are largely influenced by the likelihood of the volume of mergers and acquisitions to be highly cyclical. As distressed securities are used during illiquid debt or equity to gain from probable recovery, these strategies don't require the use of leverage ("Types of Hedge Fund Strategies," n.d.).

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Relative value arbitrage is normally used in sideways market to help increase returns in complex market environments because it requires securities to be correlated in price ("Understanding Relative-Value Arbitrage," n.d.). These strategies are moderately leveraged because they require necessary skills and knowledge for evaluating individual securities and the market. In contrast, the convertible arbitrage strategy uses varying degrees of leverage because they seek to profit from the pricing of fixed option in a convertible bond. Unlike the relative value arbitrage, this strategy incorporates taking positions in two distinct classes of assets.

Essay on Hedge Funds Are Funds That Assignment

In the current economic conditions, relative value and global macro hedge fund strategies seem to the most preferred strategies as investors are putting back more money because of the slow economic recovery (Devasabai, 2011). Unlike other strategies, relative value and global macro hedge funds have helped in partially offsetting losses in the volatile financial markets while generating strong returns.


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Partners, Inc., viewed 7 June 2012,

Chriss, N.A. (1998), Introduction to Hedge Funds, New York University, viewed 7 June 2012,

Columbia Investment Management Association (n.d.), What is a Hedge Fund? Columbia

University, viewed 7 June 2012,

Connor, G & Lasarte, T (n.d.), An Introduction to Hedge Fund Strategies, International Asset

Management, viewed 7 June 2012,
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Investors Brace for Volatility, Hedge Funds Review, viewed 7 June 2012,

Harper, D (2009), Hedge Funds Hunt For Upside, Regardless of the Market, Investopedia,

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Inglis, D (n.d.), Common Hedge Fund Strategies, The Hughes Trustco Group Ltd., viewed 7 June


Mirandon, A (n.d.), Re-assessing Multi-strategy Hedge Funds, Convergent Wealth Advisors,

viewed 7 June 2012, [END OF PREVIEW] . . . READ MORE

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