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Hedge Funds and Alphas

Please help answer the following questions.

What is a hedge fund?
What is alpha?
How do hedge funds tend to generate and report positive alphas?

Please explain in detail.
Please include 2 references.

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Questions:
What is a hedge fund?
What is alpha?
How do hedge funds tend to generate and report positive alphas?

Hedge fund

Hedging is defined by Mayo (2003) as taking opposite positions to reduce risk. It aims at the reduction of risk of loss due to price fluctuations. A hedger simultaneously takes the long and short positions as a way to reduce the degree of risk in his investment.
      
A hedge fund is a fund that can take both long and short positions, use arbitrage, buy and sell undervalued securities, trade options or bonds, and invest in almost any opportunity in any market where it foresees impressive gains at reduced risk. The primary aim of most hedge funds is to reduce volatility and risk ...

Solution Summary

The following posting helps answer questions regarding hedge funds and alphas.

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