University of Oulu

Performance and neutrality of market neutral hedge funds : evidence during the financial crisis

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Author: Vuoti, Netta1
Organizations: 1University of Oulu, Oulu Business School, Department of Finance, Finance
Format: ebook
Version: published version
Access: open
Online Access: PDF Full Text (PDF, 0.6 MB)
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Language: English
Published: Oulu : N. Vuoti, 2018
Publish Date: 2018-06-06
Thesis type: Master's thesis
Tutor: Joenväärä, Juha
Reviewer: Perttunen, Jukka
Joenväärä, Juha
Hedge funds are able to follow unconventional and dynamic trading strategies that are out of reach for traditional investment vehicles. One of these dynamic trading strategies is market neutral strategy, which aims at providing good and stable returns while simultaneously neutralizing exposure towards the market. Market neutral hedge funds are expected to perform well regardless of market conditions and this thesis focuses on analyzing, whether these funds deliver on their definition during the financial crisis of 2008. We study the performance and persistence of returns generated by market neutral hedge funds, as well as present the results of neutrality analysis during the financial crisis. The data is obtained from Lipper TASS hedge fund database and the model applied in this study is the capital asset pricing model. Results indicate that market neutral hedge funds are able to outperform the market during the financial crisis. However, they are not able to generate positive returns or statistically significant alpha. Based on the most common neutrality measures, market neutral hedge funds do not show neutrality towards the declining markets. Only a quarter of market neutral hedge funds are able to pass the mean neutrality test during the financial crisis. According to analysis in deciles, few hedge funds are able to generate positive returns during the crisis while maintaining a moderate negative exposure towards the market.
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Copyright information: © Netta Vuoti, 2018. This publication is copyrighted. You may download, display and print it for your own personal use. Commercial use is prohibited.