Asset Pricing and Hedge Fund - Essay Example

The Modus operandi of the Hedge Fund has also been described to be different from other forms of funding i.e. mutual funds owing to the fact that it involves an investment in liquid assets, and provision of leverage (Tran, 2006). Moreover, economic research has determined that the Hedge Fund operates in a dynamic and diverse market through various financial instruments and modes of investment. In this regard, the name the Hedge Fund was arrived at taking into consideration the hedging styles that were earlier applied. However, the current modes of operation of the Hedge Funds do not necessarily involve the use of hedging methods (Tran, 2006).

Currently, there are two main types of Hedging Funds, they include: “The Credit Suisse Equity Market Neutral Hedge Fund Index” and the “Credit Suisse Global Macro Hedge Fund Index”. ‘Credit Suisse Equity Market Neutral Hedge Fund Index’ has been described as a sub-branch of the Hedge Fund Index that has facilitated efforts of measurements directed towards determining the level of performance ascribed to Equity Neutral Funds. Moreover, it is perceived as a benchmark for the asset-weighing process (http://www.managedfunds.org/hedge-fund-investors, n.da). The Corpus of Credit Suisse facilitated the development of a wide range of innovative strategies for asset-weighing such as the investable indices as well as investment tracking portfolios.

On the other hand, the ‘Global Hedge Fund Macro Hedge Fund Index is a sub-branch of the Credit Suisse Hedge Fund Index that is applied to assess the global performance of funds on a macro level. The concept of Global Macro-funds involves a focus directed toward the identification of extreme price values through the application of a leverage approach. The leveraged approach is specifically applied to project the movement of prices, currency, commodity markets as well as the rates of interest (Milner, 2001). Most investors of the global hedge fund index are made up of corporate organizations that focus on the provision of pension plans; municipal pension plan companies et cetera. Read More