Working Paper: NBER ID: w21449
Authors: Mila Getmansky; Peter A. Lee; Andrew W. Lo
Abstract: The hedge-fund industry has grown rapidly over the past two decades, offering investors unique investment opportunities that often reflect more complex risk exposures than those of traditional investments. In this article we present a selective review of the recent academic literature on hedge funds as well as updated empirical results for this industry. Our review is written from several distinct perspectives: the investor's, the portfolio manager's, the regulator's, and the academic's. Each of these perspectives offers a different set of insights into the financial system, and the combination provides surprisingly rich implications for the Efficient Markets Hypothesis, investment management, systemic risk, financial regulation, and other aspects of financial theory and practice.
Keywords: Hedge Funds; Investment Management; Systemic Risk; Financial Regulation
JEL Codes: G01; G11; G12; G20; G23; G24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher incentive fees (G19) | lower mean returns net of fees (G19) |
| lower common factor exposure (G19) | higher Sharpe ratios (G40) |
| leverage (G24) | increases expected returns (G11) |
| leverage (G24) | increases volatility (G17) |
| low volatility (G19) | afford to leverage without incurring unacceptable risk levels (G32) |