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This does not prove hedge funds do not work. It only proves what we already knew: active investing is a zero sum game. This is tantamount to claiming that pok

by Dilpil 18y ago

This does not prove hedge funds do not work. It only proves what we already knew: active investing is a zero sum game. This is tantamount to claiming that poker doesn't "work" because the "average" player breaks even.

hugh 18y ago
I assume what was meant was that they failed in their job of hedging. Hedging is supposed to involve taking a very conservative position to protect against losses. This, I assume, is a bit of a joke since hedge funds have largely turned into speculation funds which take risky positions in the hopes of large returns.
- andr 18y ago
  They actually succeeded in hedging, because they halved their losses compared to the market. Hedging doesn't mean you always make money. It means that if your main instrument falls, instrument B is going to go up and cover some of the losses, but not all of them.
  - helveticaman 18y ago
    The term "hedge fund" is a leftover from times when it wasn't a catch-all for investment firms for qualified investors. As the other kind of firms had their ups and downs, hedge funds expanded into their space. By now htey are so well established many firms that aren't technically hedge funds (because they do so many other things and may not do any hedging at all) are called hedge funds. From http://en.wikipedia.org/wiki/Hedge_fund#History http://en.wikipedia.org/wiki/Hedge_fund#History: Sociologist, author, and financial journalist Alfred W. Jones is credited with the creation of the first hedge fund in 1949.[2] Jones believed that price movements of an individual asset could be seen as having a component due to the overall market and a component due to the performance of the asset itself. In order to neutralise the effect of overall market movement he balanced his portfolio by buying assets whose price he expected to rise and selling short assets he expected to fall. He saw that price movements due to the overall market would be cancelled out because if the overall market rose the loss on shorted assets would be cancelled by the additional gain on assets bought and vice-versa. Because the effect is to 'hedge' that part of the risk due to overall market movements this became known as a hedge fund.

by Dilpil 18y ago

hugh 18y ago

I assume what was meant was that they failed in their job of hedging. Hedging is supposed to involve taking a very conservative position to protect against losses. This, I assume, is a bit of a joke since hedge funds have largely turned into speculation funds which take risky positions in the hopes of large returns.

andr 18y ago
They actually succeeded in hedging, because they halved their losses compared to the market. Hedging doesn't mean you always make money. It means that if your main instrument falls, instrument B is going to go up and cover some of the losses, but not all of them.
- helveticaman 18y ago
  The term "hedge fund" is a leftover from times when it wasn't a catch-all for investment firms for qualified investors. As the other kind of firms had their ups and downs, hedge funds expanded into their space. By now htey are so well established many firms that aren't technically hedge funds (because they do so many other things and may not do any hedging at all) are called hedge funds. From http://en.wikipedia.org/wiki/Hedge_fund#History http://en.wikipedia.org/wiki/Hedge_fund#History: Sociologist, author, and financial journalist Alfred W. Jones is credited with the creation of the first hedge fund in 1949.[2] Jones believed that price movements of an individual asset could be seen as having a component due to the overall market and a component due to the performance of the asset itself. In order to neutralise the effect of overall market movement he balanced his portfolio by buying assets whose price he expected to rise and selling short assets he expected to fall. He saw that price movements due to the overall market would be cancelled out because if the overall market rose the loss on shorted assets would be cancelled by the additional gain on assets bought and vice-versa. Because the effect is to 'hedge' that part of the risk due to overall market movements this became known as a hedge fund.