Waiter! What’s this hedge fund doing in my soup?
| Nov 15th, 2006 | Filed under: Hedge Fund Industry Trends | By: Alpha Male |
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By: Fred Dopfel, Barclays Global Investors
Published: March 2005
This paper provides a good foundational overview of portable alpha strategies. But perhaps more importantly, it touches on what some would describe as the dirty little secret of the hedge fund industry: downside correlation.
Several academic studies have pointed to the propensity of various (uncorrelated) hedge funds strategies to correlate in times of distress. That is to say, when things turn ugly, they all cr*p-out together.
As evidence, Dopfel shows that the down-market beta of most hedge fund strategies is markedly higher than the up-market beta. Assuming constant volatility, this means that various disparate hedge fund strategies seem to offer little protection in a market calamity (in this case market = Russell 3000).
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[...] Waiter! What?€™s this hedge fund doing in my soup? By: Fred Dopfel, Barclays Global InvestorsPublished: March 2005This paper provides a good foundational overview of portable alpha strategies. But perhaps more importantly, it touches on what some would describe as the ?dirty little secret? of the hedge fund industry: downside correlation.Several academic studies have pointed to the propensity of various (uncorrelated) hedge funds strategies to [.] (more) [...]