[Recommended]Project 3: A New Hedge Fund

Project 3: A New Hedge Fund Biases in investment decisions as well as corporate decisions can potentially generate inefficiencies in market prices. Equity analysts and…

Project 3: A New Hedge Fund
Biases in investment decisions as well as corporate decisions can
potentially generate inefficiencies in market prices. Equity analysts
and other market participants may even exacerbate these effects. Can
“smart” investors identify and exploit short-term inefficiencies in the
market? The goal of this project is to help you develop at least one
concrete idea for starting a hedge fund.
You should provide a short report (not more than 5 pages, doublespaced)
developed around the following topics:
1. What is the main idea and why do you expect the idea to work?
2. Please explain the trading strategies clearly. In particular, please
outline the portfolio construction and rebalancing procedure.
3. What factors generate the inefficiencies you are trying to exploit
and why do they persist? How long do the inefficiencies persist and
why?
4. Why have other smart investors not yet exploited the opportunity?
What types of risks and constraints do they face that may prevent
them from successfully exploiting the opportunity?
5. Would common investors be able to exploit this opportunity? Why or
why not?
Bonus Questions: (PLEASE COMPLETE)
6. Provide some evidence (even anecdotal) to show that the strategy
“works”.
7. Obtain data and perform empirical analysis on your own to
demonstrate that the trading strategy yields superior performance.
The post Project 3: A New Hedge Fund .
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