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Table of contents
1 INTRODUCTION
1.1 BACKGROUND
1.2 PURPOSE
1.3 DELIMITATIONS
1.4 METHOD
1.5 READING INSTRUCTIONS
2 THE HEDGE FUND ENVIRONMENT
2.1 THE FUND MARKET
2.1.1 MUTUAL FUNDS
2.1.2 ALTERNATIVE INVESTMENTS / HEDGE FUNDS
2.1.3 DIFFERENCES BETWEEN HEDGE FUNDS AND MUTUAL FUNDS
2.2 HEDGE FUND STRATEGIES
2.2.1 CONVERTIBLE ARBITRAGE
2.2.2 CTA GLOBAL
2.2.3 DISTRESSED SECURITIES
2.2.4 EMERGING MARKETS
2.2.5 EQUITY MARKET NEUTRAL
2.2.6 EVENT DRIVEN
2.2.7 FIXED INCOME ARBITRAGE
2.2.8 GLOBAL MACRO
2.2.9 LONG/SHORT EQUITY
2.2.10 MERGER ARBITRAGE
2.2.11 RELATIVE VALUE
2.2.12 SHORT SELLING
2.3 HEDGE FUND INDICES
2.4 FUND OF HEDGE FUNDS
2.5 OPTIMIZED PORTFOLIO MANAGEMENT STOCKHOLM AB
3 INTRODUCTION TO PORTFOLIO THEORY
3.1 MEAN-VARIANCE APPROACH
3.2 SHARPE RATIO
4 PROBLEM DESCRIPTION
5 THEORETICAL FRAMEWORK
5.1 RISK ADJUSTED RETURN
5.1.1 MODIFIED SHARPE RATIO
5.1.2 CONDITIONAL VAR
5.2 VARIABLES EXPLAINING RISK AND RETURN
5.2.1 PLAUSIBLE VARIABLES
5.2.2 FAMA FRENCH VARIABLES
5.2.3 PCA AND FACTOR ANALYSIS
5.3 FINANCIAL TIME SERIES
5.3.1 CORRELATION AND COVARIANCE
5.3.2 AUTOCORRELATION
5.4 PREDICTABILITY MODELS
5.4.1 REGRESSION MODELS
5.4.2 IMPLICIT FACTOR MODELS
5.4.3 VOLATILITY PREDICTION MODELS
5.5 PORTFOLIO OPTIMIZATION
5.5.1 MINIMUM-VARIANCE OPTIMIZATION
5.5.2 STYLE TIMING
5.5.3 MEAN-CVAR OPTIMIZATION
6 PROBLEM ANALYSIS
6.1 RISK ADJUSTED RETURNS IN A HISTORIC PERSPECTIVE
6.2 CORRELATION WITH TRADITIONAL FINANCIAL MARKETS
6.3 INTERNAL CORRELATION AND COVARIANCE
6.4 RISK AND RETURN PREDICTION
6.5 PORTFOLIO EVALUATION
7 RESULTS
7.1 RISK ADJUSTED RETURNS IN A HISTORICAL PERSPECTIVE
7.2 CORRELATION WITH TRADITIONAL FINANCIAL MARKETS
7.3 INTERNAL CORRELATION AND COVARIANCE
7.4 RISK AND RETURN PREDICTION
7.4.1 PREDICTING RETURN
7.4.2 PREDICTING RISK
7.5 PORTFOLIO EVALUATION
7.5.1 MINIMUM-VARIANCE PORTFOLIOS
7.5.2 MEAN-VARIANCE SHARPE-OPTIMIZED PORTFOLIOS
7.5.3 OTHER PORTFOLIOS
7.5.4 PORTFOLIO COMPARISONS
8 DISCUSSIONS AND CONCLUSIONS
8.1 RISK ADJUSTED RETURNS IN A HISTORIC PERSPECTIVE
8.2 CORRELATION WITH TRADITIONAL FINANCIAL MARKETS
8.3 INTERNAL CORRELATION AND COVARIANCE
8.4 RISK AND RETURN PREDICTION
8.5 PORTFOLIO EVALUATION
8.5.1 MINIMUM-VARIANCE PORTFOLIOS
8.5.2 MEAN-VARIANCE PORTFOLIOS
8.5.3 FURTHER DISCUSSION
8.6 CONCLUSIONS
8.7 RECOMMENDATIONS
REFERENCES
