Crisis Alpha and Risk in Alternative Investment Strategies - Apr 13

Different Types of Risks Yield Different Types of Outcome

Learn why some alternative investment strategies provide opportunities in times of crisis alpha while others do not. According to the arguments made in “Crisis Alpha and Risk in Alternative Investment Strategies,” the key lies in understanding the differences found in three kinds of risk:

  • Price risk
  • Credit risk
  • Liquidity risk

The authors examine the performance of various alternative investment strategies, as executed by different hedge funds and CTAs, in view of the types of risks they take. They support their arguments with a number of graphs, including the following:

  • Equity Crisis Periods: Dec. 08 to Dec. 10
  • Crisis Alpha (Barclay CTA Index and Barclay Hedge Index): Dec. 08 to Dec. 10 and
  • Sub Strategy Performance Decomposition by Crisis Alpha
  • Crisis Alpha vs. Price Risk, Liquidity Risk and Credit Risk

The article concludes with two summary tables. Table 1 shows the basic types of risk in alternative investments and their relationship with crisis alpha. Table 2 displays the different risks in various sub-strategies of alternative investments and how these relate to crisis alpha.

About the Authors:
Kathryn Kaminski, Ph.D., and Alexander Mende, Ph.D., are researchers and experts in financial analysis.

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