Essays on hedge funds, operational risk, and commodity trading advisors

Hedge funds report performance information voluntarily. When they stop reporting they are transferred from the "live" pool of funds to the "defunct" pool. Consequently, liquidated funds constitute a subset of the defunct pool. I present models of hedge fund survival, attrition, and survivorship bias based on liquidation alone. This refines estimates of predictor variables in models of survival, leads to attrition rates of hedge funds to be roughly one half those previously thought, and produces larger estimates of survivorship bias. Survival models based on liquidated funds only, lead to an increase in survival time of 50 to 100 percent relative to survival based on all defunct funds.In addition to refining estimates of survival time, it is useful to examine how the double fee structure of hedge funds and Commodity Trading Advisors (CTA) affects the incentives of their managers. Young CTAs are usually very small --- they hold few financial assets --- and may not meet their operating expenses with their management fee alone, so their incentive is to take on risk and post good returns. As they grow, their incentive to take on risk diminishes. CTAs in their fifth year diminish their volatility by 25 percent relative to their first year, and diminish returns by 70 percent. We find CTAs to behave more like indexers as they grow, concerned with more with capital preservation than asset management.Operational risk is a major cause of hedge fund and CTA liquidation. In the banking industry, regulators have called upon institutions to develop models for measuring capital charge for operational losses, and to subject these models to stress testing. Losses are found to be inversely related to GDP growth, and positively related to unemployment. Since losses are thus cyclical, one way to stress test models is to calculate capital charge during good and bad economic regimes. We find loss distributions to have thicker tails during bad regimes. One implication is that banks will likely need to increase their capital charge when economic conditions deteriorate

The natural history of multiple sclerosis : a review of current modelling approaches /

The highly varying course of MS has made it difficult to establish accurate prognoses about its natural history. The reliability of neurologic impairment grades obtained by clinical examinations of patients is becoming recognized as important. Current statistical methods in natural history studies of MS are essentially classical survival and linear models, applied to clinical data and with mortality, impairment, and secondary progression of MS, as outcomes. However, more sophisticated modelling attempts, in particular ones that account for the fluctuating course of MS, are rare. Stochastic and time series models are two such recent methods that have been proposed. As more complex statistical models are being called upon, it is crucial that practitioners consult with statisticians to ensure that the models are being correctly selected, applied, and interpreted

Dominating Funds of Funds with Simple Hedge Fund Strategies

We construct simple portfolios of hedge funds whose performance characteristics dominate those of funds of funds using three different measures: the alpha, the Sharpe ratio and the Information ratio. Portfolios made up of non-directional funds with the highest Information ratios and/or Sharpe ratios are likely to exhibit a significant amount of persistence and continue to dominate the best funds of funds on all three performance measures. The large risk exposure of directional hedge fund strategies, however, makes them less likely to dominate funds of funds, even when combined with non-directional hedge funds strategies. Overall, these results seem to imply that the extra layer of fees paid to fund of fund managers are largely unmerited, as we can create portfolios of funds, using simple portfolio construction rules and readily available market information, that greatly outperform the best Fund of Funds