Fund Management and Their Associated Risk (AQR) Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Question 1

What are the sources of momentum? Long-leg or short leg?

Answer 1

The source of the Momentum is basically based on the Hedge Fund Management. They initially started their business with the policy of Hedge fund with gaining more advantage in the stock with developing the portfolio of the shares and debt securities for maintaining the good return yield on the diversification of the portfolio.

Basically, the company follows both periods of the return with the balancing of the tradeoff between the portfolio returns. In the long period it entails the 10 times of return with a good response investor while on the other hand, in the short period, it maintains the losses of the investors with entail the one time of the return. The company set off these returns in their respective period, such as long minus short with effective advantages of the rewards.

In this factor, the economic condition matters with respect to the criteria of the price fluctuation. These criteria are maintained for gaining more investors in the pool of the investment. This would be helpful in developing the effective portfolio of the company.

Question 2

What evidence might help you decide what explains the returns?

Answer 2

The empirical evidence provides more realistic explanation about the returns of different asset classes with respect to their terms and level of risk associated with it. It also entails the factors of the economic conditions which has been beneficial for the investor’s ends.

The long term level shows the winner volatility of the return while on the other hand small term level shows the low volatility of the return.But the smallest level is more effective as compare to the long run asset class. The reason is that it is the asset runs passive management strategy and passive is related to the current market indexes. The indexes are changed frequently as compare to the other fixed rate with pre determining the date.

The long term has been beneficial in respect to the changes over the year with the assumption of stable economic condition and political environment in the country. In short, company return is more positive in the short and if the volatility is low, then it moves to the long term.

Question 3

Is momentum priced some form of risks? Could it be behavioral?

Answer 3

Yes, the Momentum pricing has many sorts of risk which relates to the country condition which means to the economic factors that fluctuates with the price changes of the environment. For the suitability of the price and return of the company then the company should use the Fama French model for maintaining the return`s risk and their respective parameters of the investment.

The Fama French describes the high reward security with entailing the risk levels, which are associated with it. This model describes the behavior of the security under handling all the economic circumstance and provide the optimal asset hint which boost both levels which is investors and company level. The analysis of the Fama French model is done in the excel sheet which are annexed with this report named as “CASE A”. This calculation is also done in the exhibit 1.

Question 4

If you don’t know why it works, what would be the danger of basing a product? Note that momentum crashes are huge!!!

Answer 4

If the momentum had been crashed and they don't have knowledge about the return, then the product/asset based would be the financial health of the company to repay all debts and the circular advantages of the central bank of the country. The basic knowledge of selling securities with aiming the half of the investment would be returned back, which is the backbone of the investors....................................

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