A Research On Return And Risk Of Hedge Fund Investment

With the financial market becoming more sophisticated, financial derivatives are joined in traditional investment, these promote hedge fund growth. Hedge fund investment strategies change with the market sophistication. In China, reform of stock segmentation and the birth of Shanghai Finance Futures Exchange forecast a sophisticated capital market, derivatives products and market regulation attract private funds such as hedge funds.The dissertation divided into eight chapters. The first chapter explains research purpose and method. The second chapter is theoretical foundation of the dissertation , On the basis of describing hedge fund industry, including scale and amount, classification, investment method, fund structure and risks. introducing several hedge fund data providers. Summarize systematicly related papers and documents about hedge fund return and risk, including performance attribution and return pricing model, return deviation problem and evaluation method, risk analysis theories and relative research conclusions. The third chapter introduce method and structure of hedge fund investment strategy in details, explain risk source in the strategy. The forth chapter choose hedge fund index from CISDM, discuss return Statistics characteristic of different hedge funds such as CTA,CPO and others. Easy to compare different hedge fund .The fifth chapter adopts ARMA model and GARCH model to explain index return. The conclusion indicates GARCH can't be fit to CTA index, and ARMA model can explain 20-30% weakly. GARCH model can explain more than 95% return of other hedge funds, thus the conditional standard deviation be easy to estimate Var. The sixth chapter discuss from the angle of risk. GARCH-M and EGARCH model are adopted to discuss risks characters, the results indicates that hedge fund are different from stock and bond investments, the uncertain relationship between risks and returns, good news and bad news impact index return strangely. These prove further support alternative investment such as hedge fund and CTA or hedge fund FOF can disperse risks of traditional investments. The seventh chapter discusses market circumstance in China and possible investment strategies applied in domesticated market at present, which includes arbitrage and selling short put. In the finality, the problems requiring further studies are discussed.