Asked by Alexis Garland on May 17, 2024
Verified
Higher returns of equity hedge funds as compared to the S&P 500 Index reflect positive compensation for ________ risk.
A) market
B) liquidity
C) systematic
D) interest rate
Equity Hedge Funds
Hedge funds that primarily invest in stocks in order to gain from an expected increase in equity prices.
Systematic Risk
The inherent risk that affects the entire market or market segment, often referred to as market risk or un-diversifiable risk.
Market Risk
The risk of losses in investments due to factors that affect the overall performance of financial markets.
- Comprehend the function of leverage within hedge funds and its impact on both market-neutral and directional investment strategies.
Verified Answer
BA
Brian ArellanoMay 21, 2024
Final Answer :
B
Explanation :
Higher returns of equity hedge funds compared to the S&P 500 Index reflect positive compensation for liquidity risk. This is because hedge funds often invest in less liquid assets or strategies, which require a premium to compensate investors for the additional risk of not being able to quickly or easily sell these investments without a significant price concession.
Learning Objectives
- Comprehend the function of leverage within hedge funds and its impact on both market-neutral and directional investment strategies.