Hedge funds use alternative strategies to generate returns from "summary" of Institutional Investment Management by Frank J. Fabozzi
Hedge funds employ a variety of strategies that differ from traditional investment approaches in order to achieve returns that are not correlated with traditional asset classes. These alternative strategies often involve taking advantage of market inefficiencies or employing complex trading techniques. By using these alternative strategies, hedge funds aim to generate returns that are not dependent on the overall direction of the market. One common alternative strategy used by hedge funds is long-short equity investing. This strategy involves taking both long and short positions in individual stocks, with the goal of profiting from the relative performance of different companies rather than the overall direction of the market. By going long on stocks that are expected to outperform and shorting stocks that are expected to underperform, hedge funds seek to generate positive returns regardless of whether the market as a whole is rising or falling. Another alternative strategy employed by hedge funds is event-driven investing. This strategy involves taking positions in companies that are undergoing significant corporate events, such as mergers, acquisitions, or bankruptcies. By analyzing the potential impact of these events on the value of the companies involved, hedge funds seek to generate returns that are uncorrelated with broader market movements. Hedge funds also use strategies such as global macro investing, which involves making bets on macroeconomic trends and geopolitical events, and quantitative investing, which relies on mathematical models to identify trading opportunities. These alternative strategies allow hedge funds to diversify their sources of returns and potentially achieve higher risk-adjusted returns than traditional investment approaches.- Hedge funds use alternative strategies to generate returns that are not dependent on the performance of traditional asset classes. By employing a diverse array of strategies that take advantage of market inefficiencies and unique opportunities, hedge funds seek to deliver consistent returns to their investors regardless of the prevailing market conditions.
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