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 the idea 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.