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Exam 26: Hedge Funds

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Question 1

Multiple Choice

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Pairs trading is associated with

A) triangular arbitrage.
B) statistical arbitrage.
C) data mining.
D) triangular arbitrage and data mining.
E) statistical arbitrage and data mining.

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Question 2

Multiple Choice

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Hedge funds ______ engage in market timing ______ take extensive derivative positions.

A) cannot; and cannot
B) cannot; but can
C) can; and can
D) can; but cannot
E) None of the options

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Question 3

Multiple Choice

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Assume that you manage a $3 million portfolio that pays no dividends and has a beta of 1.45 and an alpha of 1.5% per month.Also, assume that the risk-free rate is 0.025% (per month) and the S&P 500 is at 1,220.If you expect the market to fall within the next 30 days you can hedge your portfolio by ______ S&P 500 futures contracts (the futures contract has a multiplier of $250) .

A hedge fund pursuing a ______ strategy is attempting to exploit temporary misalignments in relative pricing.

Unlike mutual funds, hedge funds

The typical hedge fund fee structure is

An example of a ______ strategy is the mispricing of a futures contract that must be corrected by contract expiration.

Like mutual funds, hedge funds

A hedge fund pursuing a ______ strategy is trying to exploit relative mispricing within a market, but is hedged to avoid taking a stance on the direction of the broad market.

______ uses quantitative techniques and often automated trading systems to seek out many temporary misalignments among securities.

______ are subject to the Securities Act of 1933 and the Investment Company Act of 1940 to protect unsophisticated investors.

Hedge funds often have ______ provisions as long as ______, which preclude redemption.

A bet on particular mispricing across two or more securities, with extraneous sources of risk such as general market exposure hedged away, is a

Assume that you manage a $1.3 million portfolio that pays no dividends and has a beta of 1.45 and an alpha of 1.5% per month.Also, assume that the risk-free rate is 0.025% (per month) and the S&P 500 is at 1,220.If you expect the market to fall within the next 30 days you can hedge your portfolio by ______ S&P 500 futures contracts (the futures contract has a multiplier of $250) .

______ bias arises when the returns of unsuccessful funds are left out of the sample.

Market neutral bets can result in ______ volatility because hedge funds use ______.

Hedge funds are ______ transparent than mutual funds because of ______ strict SEC regulation on hedge funds.

______ must periodically provide the public with information on portfolio composition.

Hedge funds exhibit a pattern known as a

Assume that you manage a $2 million portfolio that pays no dividends and has a beta of 1.25 and an alpha of 2% per month.Also, assume that the risk-free rate is 0.05% (per month) and the S&P 500 is at 1,300.If you expect the market to fall within the next 30 days you can hedge your portfolio by ______ S&P 500 futures contracts (the futures contract has a multiplier of $250) .