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Hedge fund refers to a financial fund that combines financial derivatives such as financial futures and financial options with financial institutions, takes high-risk speculation as a means and aims at profit.
catalogue
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* 1 What is a hedge fund?
The basic connotation of o 1. 1
The Origin and Development of o 1.2
* 2 Operation of hedge funds
* 3 well-known hedge funds
O 3. 1 quantum fund
O 3.2 Tiger Fund
* 4 hedge fund investment cases
O 4. 1 1992 sniper pounds
O 4.2 Asian financial turmoil
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What is a hedge fund?
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Basic connotation
People call financial futures and financial options financial derivatives, and they are usually used as a means to hedge and avoid risks in financial markets. With the passage of time, in the financial market, some fund organizations use financial derivatives to adopt various profit-oriented investment strategies. These fund organizations are called hedge funds. At present, hedge funds have long lost the connotation of risk hedging. On the contrary, it is generally believed that hedge funds are actually based on the latest investment theory and extremely complex financial market operation skills, making full use of the leverage of various financial derivatives to undertake high-risk and high-yield investment models.
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source and course
The English name of Hedge Fund means "hedge fund", which originated in the United States in the early 1950s. At that time, the purpose of operation was to use financial derivatives such as futures and options, as well as the operational skills of buying and selling different related stocks and hedging risks, which could avoid and resolve investment risks to a certain extent. 1949 The first Jones hedge fund with limited cooperation in the world was born. Although hedge funds appeared in the 1950s, they did not attract much attention in the next thirty years. Until 1980s, with the development of financial liberalization, hedge funds had broader investment opportunities, and then entered a stage of rapid development. In 1990s, the threat of global inflation gradually decreased, financial instruments became more mature and diversified, and hedge funds entered a stage of vigorous development. According to the Economist, from 1990 to 2000, more than 3,000 new hedge funds appeared in the United States and Britain. After 2002, the yield of hedge funds has declined, but the scale of hedge funds is still not small. According to the Financial Times' report on October 22nd, 2005, the total assets of global hedge funds have reached 1. 1 trillion dollars.
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Operation of hedge funds
In the initial hedging operation, the fund manager buys a put option with a certain price and term after buying a stock. The utility of put option is that when the stock price falls below the option-limited price, the holder of seller option can sell his stock at the option-limited price, thus hedging the risk of stock decline. In another hedging operation, the fund manager first chooses a bullish industry, buys several high-quality stocks in this industry, and sells several inferior stocks in this industry according to a certain proportion. The result of this combination is that if the industry is expected to perform well, the increase of high-quality stocks will exceed other stocks in the same industry, and the gain from buying high-quality stocks will be greater than the loss from shorting inferior stocks; If the expectation is wrong, the stocks of this industry will fall instead of rising, then the decline of the stocks of poor companies will be greater than that of high-quality stocks, and the profit of short selling will be higher than the loss caused by the decline of buying high-quality stocks. It is precisely because of this mode of operation that early hedge funds were regarded as a conservative investment strategy for fund management. But with the passage of time, people's understanding of the role of financial derivatives has gradually deepened. In recent years, hedge funds have been favored because of their ability to make money in a bear market. From 1999 to 2002, the average annual loss of Public Offering of Fund was 1 1.7%, while the average annual profit of hedge funds was 1 1.2%. There is a reason why hedge funds have achieved such impressive results, and their gains are not as easy as the outside world understands. Almost all hedge fund managers are excellent financial brokers.
Figure 1: price/transaction volume
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Figure 1: price/transaction volume
The financial derivatives used by hedge funds (taking options as an example) have three characteristics: first, they can leverage larger transactions with less funds, which is called the magnification of hedge funds, which is generally 20 to 100 times; When the transaction volume is large enough, it can affect the price (see figure1); Secondly, according to Lorenz Glitz, because the buyer of the option contract has only rights but no obligations, that is, on the delivery date, if the exercise price of the option is unfavorable to the option holder, the holder can not perform it. This arrangement reduces the risk of option buyers, and at the same time induces people to make riskier investments (that is, speculation); Thirdly, according to John Hull, the greater the deviation between the exercise price of the option and the spot price of the asset (specific subject matter) of the option, the lower its own price, which brings convenience to the subsequent speculative activities of hedge funds.
After hedge fund managers discovered the above characteristics of financial derivatives, their hedge funds began to change their investment strategies. They changed the investment strategy of hedge trading to manipulate several related financial markets through a large number of transactions and profit from their price changes.
At present, there are more than 20 investment strategies commonly used by hedge funds, which can be divided into the following five methods:
* (1) long position and short position, that is, buying and selling stocks at the same time, which can be net long position or net short position;
* (2) Market neutrality, that is, buying stocks with low stock prices and selling stocks with high stock prices;
* (3) Convertible bond arbitrage, that is, buying convertible bonds at a low price and shorting the stock at the same time, and vice versa;
* (4) global macro, that is, analyzing the economic and financial systems of various places from top to bottom, and trading according to political and economic events and general trends;
* (5) Managing futures, that is, holding long and short positions in various derivatives.
The two most classic investment strategies of hedge funds are "short selling" and "leverage".
Short selling, that is, buying stocks as a short-term investment, is to sell the stocks bought in the short term first, and then buy them back when the stock price falls to earn an arbitrage. Almost all short sellers borrow other people's stocks to make short positions ("long position", which means buying their own stocks for long-term investment). It is most effective to take a short strategy in a bear market. If the stock market rises instead of falling, and short sellers bet in the wrong direction of the stock market, they must spend a lot of money to buy back the appreciated stocks and eat into losses. Shorting this investment strategy is not adopted by ordinary investors because of its high risk.
"Leverage" has multiple meanings in financial circles. Its English word basically means "lever". Usually refers to expanding one's capital base through credit. Credit is the lifeblood and fuel of finance, and entering Wall Street (financing market) through "leverage" has a "symbiotic" relationship with hedge funds. In high-risk financial activities, "leverage" has become an opportunity for Wall Street to provide chips for big players. Hedge funds borrow money from big banks, while Wall Street provides services such as buying and selling bonds and backstage. In other words, hedge funds with bank loans will in turn invest a lot of money back to Wall Street in the form of commissions.
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Famous hedge funds
The most famous hedge funds are george soros's Quantum Fund and Julius Robertson's Tiger Fund, both of which have created compound annual returns of 40% to 50%. High-risk investment may bring high returns to hedge funds, and it may also bring unpredictable losses to hedge funds. The biggest hedge fund can't be invincible in the unpredictable financial market forever.