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A hedge fund has compiled a list of French firms that it believes will outperform the overall French stock market by 7 percent over the year. It also has compiled a list of French firms that it believes will underperform the overall French stock market by 7 percent. The hedge fund wants to invest in a market-neutral long/short strategy on the French stock market. It has a capital of €25 million for this purpose. However, it would like to retain a cash cushion of €1 million for unforeseen events. The hedge fund can borrow shares from a primary broker with a cash margin deposit equal to 20 percent of the value of the shares. No additional costs are charged to borrow the shares.
Required:
Outline the appropriate strategy for the hedge fund.
- Had to list 5 steps for the chosen strategy ; include a formula on how to compute the following
- The strategy had to counter the over value and under value of the French stock.
- Need to be based on Harvard Referencing; if possible 2 resources to be used here.
- What is the leverage can the hedge fund take on?
Portfolio Assignment
Calculate the performance measures of each of the funds (A, B, and C) using Sharpe's, Treynor's, and Jensen's measures. Rank the results for each of the funds and identify the funds that outperformed the market using the Sharpe's ratio and Treynor'..
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