Hedge Funds Coursework Example | Topics and Well Written Essays - 750 words

Hedge Funds - Coursework Example Trend forecast signal is used and will generate up and down signals when buying or selling pressure builds up in a stock, currency, index or future. The forecasts are only a signal to watch for further strength above or below signal bars. The forecasts can mean buying or selling pressure has built up so much a new high or low price will happen soon forming a continuation of the trend OR the price is overdone, and a close of a bar moving in the opposite direction to the last forecast bar could signal a trend failure or reversal point. A hedge fund that can take both long and short positions, buy and sell undervalued securities, trade options or bonds and invest in almost any opportunity in any market where it foresees impressive rates at reduced risks (Friedland, 2011). These features results to hedge fund being able to offer exposure to risk factors those traditional long-only strategies cannot (Agarwal and Narayan, 2002). Exposure to systemic factors, example, small-cap, value companies and emerging markets normally entails higher returns but also higher risks. Norges Bank Investment Management (2011) further emphasizes the importance of continuously measuring the fund’s exposure to such factors and the importance to gain a static and dynamic overview to manage systematic exposure to one or more risk factors. This ability of hedge fund to take both long and short positions, makes it difficult to evaluate its performance, example, in the case where the manager can invest in any asset class, trade in deriv atives and follow a myriad of dynamic trading strategies (Agarwal and Narayan, 2000). Despite this, investors who have moved into active investment from passive strategies start their own hedge fund and its interest is gathering pace (Amenc, Susan and Lionel, 2004). For instance if there has been 2 up forecast bars in a row but the price is failing to break onto a new high, then also watch for a reversal in the price to break below the