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Risk Analysis of Hedge Funds Versus Long-Only Portfolios

Duen-Li (Tony) Kao

General Motors Corporation - Asset Management

October 2001

General Motors Asset Management Working Paper

This article examines empirical evidence of active performance differences in long-only versus long/short investing. It also provides potential explanations from the standpoint of compensation and investment constraints.

To further gain insight of how hedge funds incur risks, the article reviews the evolution of methodologies for analyzing hedge fund risk. It first examines return/risk patterns of various hedge fund investments and issues related to data reliability. Risk factors related to market returns, economic conditions and financial markets are presented. The article proposes an alternative method of analyzing "investment style" as applied to hedge fund investments. It also reviews the contingent claim approach to hedge fund risk analysis: replicating hedge fund's option-like payoffs or trading strategies. The investment implications are discussed in the final section

Number of Pages in PDF File: 38

Keywords: Hedge funds, risk analysis

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Date posted: August 18, 2001  

Suggested Citation

Kao, Duen-Li (Tony), Risk Analysis of Hedge Funds Versus Long-Only Portfolios (October 2001). General Motors Asset Management Working Paper. Available at SSRN: http://ssrn.com/abstract=280389 or http://dx.doi.org/10.2139/ssrn.280389

Contact Information

Tony Kao (Contact Author)
General Motors Corporation - Asset Management ( email )
767 5th Avenue
New York, NY 10153
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