A behavioral finance approach to Hedge Funds. A review and empirical tests of biases and errors
Abstrakt
The author describes the characteristics of hedge funds as an alternative investment vehicle
including their history, legal structure, regulation and various investment strategies. Behavioral
finance is a cognitive psychological approach to financial decisions. The author introduces
the three themes of behavioral finance including heuristics, framing and inefficient markets
following by an explanation of how they might effect financial practitioners. In a discussion he
proposes that hedge fund managers, due to the specific characteristics of hedge fund
operations, are more prone to suffering from cognitive biases undetected and that the
committed errors may have far greater consequences than in other fields of investments. To back up his arguments the author gives the example of the fall of LTCM and shows how
some of their bad decisions were based on biases that are explained by behavioral finance.
Opis
Słowa kluczowe
hedge funds, behavioral finance, Long Term Capital Management (LTCM), strategy