EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Question
Chapter 26, Problem 5PS
Summary Introduction
To determine:
For evaluation of hedge fund, the most appropriate benchmark among the given ones.
Introduction:
For hedge fund evaluation, evaluation of the indexes is done and it is seen that when there is a fixed income hedge fund then the high return individual index would be the best and when there is an equity hedge fund then the most liquid stocks in indexes are considered as a best individual market index.
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- You develop the following covariance matrix of returns Hedge Fund Market Index Hedge Fund 64 42 Market Index 42 36 The correlation of returns between the hedge fund and the market index is closest toarrow_forwardWhat problems would confront a mutual fund trying to create an index fund tied to an equally weighted index of a broad stock market?arrow_forwardThe market risk premium is defined as __________. A. the difference between the return on an index fund and the return on Treasury bills B. the difference between the return on a small firm mutual fund and the return on the Standard and Poor's 500 index C. the difference between the return on the risky asset with the lowest returns and there turn on Treasury bills D. the difference between the return on the highest yielding asset and the lowest yielding assetarrow_forward
- Which of the following is most accurate in describing the problems of survivorship bias and backfill bias in the performance evaluation of hedge funds?a. Survivorship bias and backfill bias both result in upwardly biased hedge fund index returns.b. Survivorship bias and backfill bias both result in downwardly biased hedge fund index returns.c. Survivorship bias results in upwardly biased hedge fund index returns, but backfill bias results in downwardly biased hedge fund index returns.arrow_forwardGiven a simple world with two assets, a bond fund and a stock fund, clearly detail the steps involved in arriving at the 1) efficient frontier, and 2) market (optimal) portfolio.arrow_forwardThe following data relates to the portfolios of a fund’s two equity managers Total Return Beta Manager A 24 % 1.0 Manager B 30.0 % 1.5 S&P 500 21.0 Lehman 31.0 91 day Treasury bills 12.0 Calculate and compare the risk-adjusted performance of the two managers relative to each other and to the S&P 500. Explain the reasons why the conclusions drawn from this calculation may be misleading.arrow_forward
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