Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Did The Subprime Focused Hedge Funds Take Advantage of the Crisis?

A working paper by Christos I. Giannikos and Panagiotis Schizas try to answer whether subprime focused hedge funds knew what was coming and took advantage of the crisis. Here is an excerpt from their working paper:

This work contributes to the studies of the performance of hedge funds during crises. But it specializes in those hedge funds that focus in subprime mortgage strategies and the common risk factors affecting them. Brummermeier and Nagel (2004), who studied hedge funds during the technology bubble, argued that they did not avoid the particular downturn of the market. During the period of the study the market peaked in September 1999, while the hedge funds valuation did so 6 months later6. Since the most sophisticated investors, i.e. the hedge funds, failed to identify the technology bubble then, it is interesting to explore whether they used their recent experience to benefit from the recent crisis. Therefore this study is also a further evaluation of the perceived sophistication of hedge funds. It plainly asks first the question: did the subprime focused hedge funds take advantage of the recent crisis?

This paper documents that hedge funds specializing in Sub-prime mortgages did not take advantage of the housing bubble and they did not trade against it. Hedge fund capitalization is an important factor regarding how funds suffered during the crisis. Small funds suffered the most. Mid and small cap portfolios took into account housing prices while fund managers of large portfolios used mainly subprime loan foreclosures. Also, mid cap portfolio primarily relied on macroeconomic indicators (mortgage ARM rates, housing prices, subprime foreclosures) and, as a result, suffered less compared to their peers above. Duration and quality of the credit instruments are significant factors in explaining hedge funds returns. Naturally, our study, in line with the existing literature during turbulent periods, documents that the lack of liquidity was a key driver of performance.

Read the rest here.

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!