Question 1

If the yield on mortgage-backed securities was abnormally high compared to Treasury bonds, a hedge fund pursuing a relative value strategy would

Accepted Answer

A) short sell the Treasury bonds and short sell the mortgage-backed securities. 
B) short sell the Treasury bonds bonds and buy the mortgage-backed securities. 
C) buy the Treasury bonds and buy the mortgage-backed securities. 
D) buy the Treasury bonds and short sell the mortgage-backed securities. 
E) None of the options 
A) short sell the Treasury bonds and short sell the mortgage-backed securities. 
B) short sell the Treasury bonds bonds and buy the mortgage-backed securities. 
C) buy the Treasury bonds and buy the mortgage-backed securities. 
D) buy the Treasury bonds and short sell the mortgage-backed securities. 
E) None of the options

Question 2

Sadka (2010) shows that exposure to unexpected declines in ________ is an important determinant of average hedge fund returns and that the spreads in average returns across funds with the highest and lowest ________ may be as much as 6% annually.

Accepted Answer

A) market risk; systematic risk 
B) market liquidity; liquidity risk 
C) unsystematic risk; unique risk 
D) default risk; default risk 
A) market risk; systematic risk 
B) market liquidity; liquidity risk 
C) unsystematic risk; unique risk 
D) default risk; default risk

Question 3

________ refers to sorting through huge amounts of historical data to uncover systematic patterns in returns that can be exploited by traders.

Accepted Answer

A) Data mining 
B) Pairs trading 
C) Alpha transfer 
D) Beta shifting 
A) Data mining 
B) Pairs trading 
C) Alpha transfer 
D) Beta shifting

Question 4

Hedge fund performance may reflect significant compensation for ________ risk.

Accepted Answer

A) liquidity 
B) systematic 
C) unsystematic 
D) default 
E) unsystematic and default 
A) liquidity 
B) systematic 
C) unsystematic 
D) default 
E) unsystematic and default

Question 5

A ________ is an investment fraud in which a manager collects funds from clients, claims to invest those funds on their behalf, reports extremely favorable investment returns, but in fact uses the funds for his own use.

Accepted Answer

A) Ponzi scheme 
B) bonsai scheme 
C) statistical arbitrage scheme 
D) pairs trading scheme 
E) None of the options 
A) Ponzi scheme 
B) bonsai scheme 
C) statistical arbitrage scheme 
D) pairs trading scheme 
E) None of the options

Question 6

Explain the five major differences between hedge funds and mutual funds.

Accepted Answer

The five major categories of differences

Question 7

Performance evaluation of hedge funds is complicated by

Accepted Answer

A) liquidity premiums. 
B) survivorship bias. 
C) unreliable market valuations of infrequently traded assets. 
D) unstable risk attributes. 
E) All of the options 
A) liquidity premiums. 
B) survivorship bias. 
C) unreliable market valuations of infrequently traded assets. 
D) unstable risk attributes. 
E) All of the options

Question 8

A hedge fund pursuing a ______ strategy is betting one sector of the economy will outperform other sectors.

Accepted Answer

A) directional 
B) nondirectional 
C) stock or bond 
D) arbitrage or speculation 
E) None of the options 
A) directional 
B) nondirectional 
C) stock or bond 
D) arbitrage or speculation 
E) None of the options

Question 9

Hedge fund strategies can be classified as

Accepted Answer

A) directional and nondirectional. 
B) stock or bond. 
C) arbitrage or speculation. 
D) stock or bond and arbitrage or speculation. 
E) directional and nondirectional and stock or bond. 
A) directional and nondirectional. 
B) stock or bond. 
C) arbitrage or speculation. 
D) stock or bond and arbitrage or speculation. 
E) directional and nondirectional and stock or bond.

If the yield on mortgage-backed securities was abnormally high compared to Treasury bonds, a hedge fund pursuing a relative value strategy would

Sadka (2010) shows that exposure to unexpected declines in is an important determinant of average hedge fund returns and that the spreads in average returns across funds with the highest and lowest may be as much as 6% annually.

________ refers to sorting through huge amounts of historical data to uncover systematic patterns in returns that can be exploited by traders.

Hedge fund performance may reflect significant compensation for ________ risk.

A ________ is an investment fraud in which a manager collects funds from clients, claims to invest those funds on their behalf, reports extremely favorable investment returns, but in fact uses the funds for his own use.

Explain the five major differences between hedge funds and mutual funds.

Performance evaluation of hedge funds is complicated by

A hedge fund pursuing a ______ strategy is betting one sector of the economy will outperform other sectors.

Hedge fund strategies can be classified as

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

Exam 26: Hedge Funds

If the yield on mortgage-backed securities was abnormally high compared to Treasury bonds, a hedge fund pursuing a relative value strategy would

Sadka (2010) shows that exposure to unexpected declines in ________ is an important determinant of average hedge fund returns and that the spreads in average returns across funds with the highest and lowest ________ may be as much as 6% annually.

________ refers to sorting through huge amounts of historical data to uncover systematic patterns in returns that can be exploited by traders.

Hedge fund performance may reflect significant compensation for ________ risk.

A ________ is an investment fraud in which a manager collects funds from clients, claims to invest those funds on their behalf, reports extremely favorable investment returns, but in fact uses the funds for his own use.

Explain the five major differences between hedge funds and mutual funds.

Performance evaluation of hedge funds is complicated by

A hedge fund pursuing a ______ strategy is betting one sector of the economy will outperform other sectors.

Hedge fund strategies can be classified as

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

Sadka (2010) shows that exposure to unexpected declines in is an important determinant of average hedge fund returns and that the spreads in average returns across funds with the highest and lowest may be as much as 6% annually.