There are many ways of measuring the value of hedge funds. One useful indicator is the ratio of upside to downside capture. When the ratio is high, there is more positive convexity. Investors will receive more return when the overall market is rising versus falling.
A simple analysis of upside and downside capture was done in a recent research piece on hedge fund descriptions, see "Investing in Hedge Funds: Why Hedge Funds?" from Mercer. However, Mercer did not note the value of the upside to downside ratio. Our figure takes the same upside and downside data and forms the ratio to show the value of macro and relative value trading.
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