Do Investors Really Need Complex Derivative Strategies? Evidence from Hedge Funds and Funds of Hedge Funds
University of Vaasa
January 22, 2010
This study investigates the benefits of using a more complex derivative strategy of a fund in relation to their performance and risk characteristics using samples of 3,382 individual hedge funds and 761 funds of hedge funds. The results of the study are consistent with the hypothesis that the complexity of derivative strategy can be related to increased probability of suffering large losses. The results also present evidence that that the complexity is related to weaker performance leaving little reasonable motivation for investors to invest in complex derivative strategies.
Number of Pages in PDF File: 32
Keywords: hedge funds, derivatives, Financial Risk
JEL Classification: G01, G11, G23
Date posted: February 20, 2009 ; Last revised: January 26, 2010