![]() TABLE 5: PROPORTIONAL SHARE IN PRIME BROKERAGE SERVICE (TOP 5 MAKE UP 62 PERCENT, TOP 10 MAKE UP 80 PERCENT) LIST OF FIGURESįIGURE 1: ACCUMULATED RETURNS OF THE DOW JONES CREDIT SUISSE BROAD HEDGE FUND INDEX AND S&P500įIGURE 2: NUMBER OF HEDGE FUNDS VS. TABLE 4: MAXIMUM DRAWDOWN OF HEDGE FUNDS VS. TABLE 3: CORRELATION MATRIX OF VARIOUS HEDGE FUND STRATEGIES AND BOND & STOCK MARKET INDICES TABLE 2: OFFSHORE LOCATION OF HEDGE FUNDS IN PERCENT TABLE 1: DEVELOPING PROPORTION OF FINANCIAL ASSETS HEDGE FUNDS’ ASSETS UNDER MANAGEMENT RELATIVE TO TOTAL GLOBAL ASSETS OF THE LARGEST 1,000 BANKS FROM 1998 - 2007 ![]() POTENTIAL RISKS FOR THE FINANCIAL SYSTEMħ.2.1.1.1 Funding and Instrument Leverageħ.2.1.1.3 Development of Leverage from the Russian Default until 2011ħ.2.1.2 Implications of Counterparty Credit Riskħ.2.1.2.1 Counterparty Credit Risk Managementħ.2.1.2.2 Limitations of Counterparty Credit Risk Managementħ.2.1.2.3 Systemic Relevance of Counterparty Credit Riskħ.2.2 I NDIRECT T RANSMISSION C HANNEL 48ħ.2.2.1.2 Funding Liquidity Risk from Investor Redemptionsħ.2.2.1.3 Funding Liquidity Risk from Financiersħ.2.2.1.4 Systemic Relevance of Liquidity Riskħ.2.2.2 Implications of Connectedness Riskħ.2.2.2.1 Empirical Evidence of Connectednessħ.2.2.2.2 Systemic Relevance of Connectedness Risk POTENTIAL BENEFITS FOR THE FINANCIAL SYSTEMĦ.3 PROVIDERS OF MARKET LIQUIDITY AND EFFICIENCYĦ.3.1 H EDGE F UNDS ’ R OLE IN R ISING M ARKETS 24Ħ.3.2 H EDGE F UNDS ’ R OLE IN F ALLING M ARKETS 25ħ. DISTINGUISHING HEDGE FUNDS FROM OTHER INVESTMENT VEHICLESĦ. O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.3. Get Strategic Risk Management now with the O’Reilly learning platform. Unlike other metrics, such as volatility, and downside measures, like skewness or semi-variance, the maximum drawdown statistic crucially depends on the order in which the returns. The maximum drawdown statistic is appealing because it is unambiguous in its calculation and captures the most unfavorable investment outcome: buying at the peak and selling at the bottom. For example, for hedge fund investments, money is often pulled out when a threshold for the maximum drawdown is crossed. When evaluating managers or strategies, investors pay close attention to the maximum drawdown, which is the largest peak-to-trough return over the life of an investment. In practice, however, asset managers and fiduciaries routinely use the drawdown statistic for fund allocation and redemption decisions. ![]() ![]() That is, conditional on a drawdown, is there information in drawdowns that could be useful for strategic portfolio management? In addition, how does the application of drawdown control impact portfolio expected returns? 1Ĭommon risk metrics reported in academia include volatility, skewness, and factor exposures, but the maximum drawdown statistic is rarely calculated, perhaps because it is path dependent and estimated with greater uncertainty. We now explore the information in the drawdown risk metric. Chapters 3 and 4 focused on two portfolio mechanisms that serve to reduce the severity of portfolio drawdowns: strategic rebalancing and volatility targeting. ![]()
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