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Risk Measurement and Investment Myopia in Hedge Fund Management *
Author(s) -
Li Xun,
Wu Zhenyu
Publication year - 2009
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 1226-1165
DOI - 10.1111/j.2041-6156.2009.tb00006.x
Subject(s) - hedge fund , basis risk , returns based style analysis , asset allocation , portfolio , open end fund , investment management , manager of managers fund , fund of funds , business , actuarial science , performance fee , management fee , investment strategy , hedge accounting , investment fund , risk management , fund administration , economics , finance , capital asset pricing model , institutional investor , corporate governance , market liquidity
Lo (2001) surveys the literature on risk management for hedge funds, and recommends a dynamic and transparent risk measurement for the evolutionary hedge fund industry by citing Albert Einstein's comments. This study is to explore the feasibility and advantages of adopting a dynamic absolute‐deviation risk measurement in hedge fund management. It does not only provide an optimal asset allocation strategy both analytically and numerically in a dynamic mean‐absolute deviation (DMAD) setting for hedge fund managers, but also contributes to mitigation of potential investment myopia problems in their risk‐taking behaviors. It sheds light on risk management and investor‐fund manager agency conflicts in the hedge fund industry and adds to the literature on portfolio selection and optimal asset allocation.