Project – A New Hedge Fund

Project – A New Hedge Fund

Investment bias focuses on market predictions with the prospect of integrating assumptions on bullish or bearish behavior, defining the decisions of most investors. Participants in markets involving products such as hedge funds focus on the trends from assertive market strategies, such as the behavioral traits in determining when to participate or exist in the market. As a result, the inclusion of market bias in their decision-making capacity may have detrimental effects on their anticipated returns. Besides, the impression of successful traders or portfolio managers tends to stem from their deductive abilities and their prowess in predicting market behaviors. In most cases, the attainment of such qualities tends to be limiting concerning the expectations of the targeted product and the reactions of the involved investors, hence the distinction among market participants. Hire our assignment writing services in case your assignment is devastating you.

The hedge fund idea

The choice hedge fund idea focuses on micro-investment in the cryptocurrency trade. Participating in a micro-investment plan lessens the concerns of the attributed risks as it seeks to expand on the interests of the market participants through increased portfolio management structures. Cryptocurrency lists among the emerging financial markets are facing increased interest amidst resistance from most fiscal policy developers. Also, the currency offers a dynamic approach to comprehending the expectations of the market from a performance perspective (Cao, Liang, Lo, & Petrasek, 2017). As a result, the expectations of engaged market analysis may extend to comprise of notable instances of bias in trade analysis.

The operative idea of engaging a hedge fund focusing on cryptocurrency anchors on the flexibilities associated with market entry and exist. Hedge funds allow randomized market entry structures leading to an improved sense of ease in operations. Also, the model pairs with the dynamic expectations associated with cryptocurrencies. Under contemporary practice, the promotion of randomized existence and entry into a market allows the capitalization of a potential sense of bias associated with predicted bullish or bearish behavior (Ahn, Wiersema & Zhang, 2018). Reflecting on the operations of the idea, the primary interest supporting the engagement in the market includes the expectations of the players and the eventual anticipations of the targeted products. Arguably, the success of the model would involve participating in the promotion of reliable evaluation models that rely on accuracy in market prediction and other tools of hedge funds, such as speculation and endorsement, in achieving the desired performance.

Trading Strategies

The ideal trading strategy for the hedge fund model would be to leverage the portfolio manager from investor pressure while allowing adequate time to evaluate the market for the prediction of possible trends. Managing a hedge fund portfolio developed to form a prospective long-term credit model would permit the eventual attainment of the desired outcomes to form a revenge generation point. Short-term credit facilities would lead to the development of unrealistic pressure on the traders regarding the impact extended to the investment (Mokhtarian & Lindgren, 2018). As a result, the expectations of the trading strategy involve practices such as long-term credit modeled on a fixed-income arbitrage structure. Portfolio rebalancing will involve efforts such as the expansion of the investment component and plowing back fractions of generated revenue.

The description of the funding model would need a similar approach to defining the trading model embraced by the strategy. As earlier mentioned, the input of a micro-investment approach offers solid return prospects in comparison to a macro-investment alternative. Micro-approaches allow the distribution of risk over wide market products, leading to improved portfolio security. However, the same may not define the anticipated returns (Ahn, Wiersema & Zhang, 2018). However, promoting an extensive micro-investment model may allow the attainment of the desired market returns as anticipated by the investor.

Portfolio efficiency

The success of hedge fund products is defined by the attached sense of popularity and the subsequent approval and recommendation input. Evaluating such traits in defining the expectations of the products in the market allows capitalization on the possibilities of enacting market bias. In the case of cryptocurrency, the prospect of having the products stir attributable attention in the market remains annexed to their sense of use (Cao, Liang, Lo, & Petrasek, 2017). Currently, cryptocurrency seems to define the dynamics of the finance world with the upsurge of user dynamics playing a critical role in the shaping of its performance trend.

The persistence of the identified inefficiencies of the cryptocurrency models drafts form the expectations of the established sense of excitement on the involved products. Arguably, the model adheres the expectations of products under hedge fund markets. Their sustainability would depend on the implication the products would have on the market participants on both a short and long-term perspective (Mokhtarian, & Lindgren, 2018). Ideally, the identified inefficiencies may manifest a declining effect in line with the expectations of the market on the established cryptocurrency products.

Explaining investor behavior

Smart investors have shied from participating in cryptocurrency-modeled hedge fund markets due to the high volatility of the included products. Product volatility implied the prospect of experiencing an improved sense of bias in product performance and shared expectations on the generated products. There is a need to explore market behavior from the perspective of investor assertiveness and product dynamics when reflecting on the targeted products (Cao, Liang, Lo, & Petrasek, 2017). Arguably, the two factors amount to the elemental reasons discouraging smart investors from participating in the targeted market.

Reactions of common investors

The ability of common investors to exploit the trends of products in cryptocurrency markets may manifest notable challenges. In essence, cryptocurrency predicts manifest a distinct behavior in comparison with their routine investor item. Attributes such as the anticipated returns from the transaction and the limited knowledge on the underlying terms offer reliable indicators on the occurrence of the suggested performance limitations for ordinary investors (Ahn, Wiersema & Zhang, 2018). Ideally, their challenge tends to replicate the crisis faced by common investors upon entry into the forex markets. Cryptocurrency markets share further constraints from their forex counterparts due to the lack of a centralized regulatory entity to define their market exploits.

Reliability of the strategy

Portfolio management involves the appraisal of the associated with risks and the development of a reliable technique in maximizing on the desired returns. In the case of micro-investment, the primary trading agenda in the management of the risks include the spreading of the asset on the identified products. Arguably, placing a higher sum would result in a better return, following an upward outcome for the targeted product. However, the same remains true for downward performances.

Table 1: descriptive statistic on the behavior of portfolio from a size perspective (See & Jusoh, 2012)

The minimum and maximum values assist in portraying the level of returns anticipated from an investment portfolio. A large portfolio suggests increased returns in contrast to small investments. However, the dynamics of the market do not assure upward performance. As a result, the expectations of such returns involve engaging equally high risk in the investment portfolio (Mokhtarian & Lindgren, 2018). Spreading minimum value investments through various portfolios mitigates the expected risks while allowing the pooling of the minute returns into an improved volume.

References

Ahn, A. M., Wiersema, M. F., & Zhang, Y. (2018, July). Activist Hedge Fund Success: The Role of Reputation. In Academy of Management Proceedings (Vol. 2018, No. 1, p. 15720). Briarcliff Manor, NY 10510: Academy of Management.

Cao, C., Liang, B., Lo, A. W., & Petrasek, L. (2017). Hedge fund holdings and stock market efficiency. The Review of Asset Pricing Studies, 8(1), 77-116.

Mokhtarian, E., & Lindgren, A. (2018). Rise of the Crypto Hedge Fund: Operational Issues and Best Practices for an Emergent Investment Industry. Stan. JL Bus. & Fin., 23, 112.

See, Y. P., & Jusoh, R. (2012). Fund characteristics and fund performance: Evidence of Malaysian mutual funds. International Journal of Economics and Management Sciences, 1(9), 31-43.

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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 (i.e., develop a new trading strategy) that exploits potential inefficiencies in the market.

Project – A New Hedge Fund

For this Project 3 Assignment, you will outline the details of the trading strategies and the portfolio construction method for the new hedge fund.

For this activity:

Consider at least one concrete idea for starting a hedge fund
Also, consider the trading strategies and the portfolio construction method used for the new hedge fund
To complete this Assignment:

Write a short report (not more than 5 pages, double-spaced) developed around the following:
What is the main idea, and why do you expect it to work?
Please explain the trading strategies clearly. In particular, please outline the portfolio construction and rebalancing procedure.
What factors generate the inefficiencies you are trying to exploit, and why do they persist? How long do the inefficiencies persist, and why?
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?
Would common investors be able to exploit this opportunity? Why or why not?
Optional Questions (bonus points awarded if you answer these questions):

Provide some evidence (even anecdotal) to show that the strategy “works.”
Obtain data and perform empirical analysis on your own to demonstrate that the trading strategy yields superior performance.