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2014/2015  KAN-COECV1026E  Hedge Fund Strategies

English Title
Hedge Fund Strategies

Course information

Language English
Course ECTS 7.5 ECTS
Type Elective
Level Full Degree Master
Duration One Semester
Course period Autumn
Timetable Course schedule will be posted at calendar.cbs.dk
Max. participants 60
Study board
Study Board for MSc in Advanced Economics and Finance
Course coordinator
  • Lasse Heje Pedersen - Department of Finance (FI)
Secretary: Ida Lyngby - il.eco@cbs.dk
Main academic disciplines
  • Finance
Last updated on 07-05-2014
Learning objectives
The grading of the class is based on the students’ proven ability to understand active investment strategies and analyze them using rigorous quantitative methods. This includes, among other things,
  • Understanding each of the trading strategies covered in class, including an ability to analyze them conceptually/mathematically and apply them in specific examples. (This is an important part of the class.)
  • Understanding why strategies might work, and why they might not.
  • Computing performance measures and critically evaluate the output.
  • Simulating backtests of investment strategies.
  • Understanding liquidity and transaction costs, and deriving the net returns in a backtest.
  • Understanding margin requirements, computing an investment strategy’s capital use, including knowledge of when it would receive a margin call.
  • Applying regression analysis, including in return forecasting
  • Understanding biases, including being able to avoid such pitfalls as look-ahead bias, selection bias, and survivorship bias.
  • Knowledge of the historical events connected to hedge funds and markets covered in class.
  • Working independently on projects involving mathematical analysis and data analysis
  • Generalizing arguments, methods, and concepts to problems that have not been analyzed explicitly throughout the course.
Course prerequisites
1. Please note that this course is taught at an elite level. More specifically, students are required to have taken Portfolio Theory (FIR) or Financial Markets and Instruments (FSM) or Capital Market Theory (AEF) or Asset Pricing (cand.oecon.) or Corporate Finance and Incentives or Asset Pricing Theory (cand.polit.). Graduate students in MØK and cand.scient.oecon. must have completed at least their bachelor courses in finance.

2. Send in a 1 page motivated application, a 1 page CV, and a graduate grade transcript. Send this to: oecon.eco@cbs.dk no later than 13 May 2014. Also remember to sign up for the course through the online registration.
3-hour written:
Exam ECTS 7,5
Examination form Written sit-in exam
Individual or group exam Individual
The exam is a Closed-Book Written Exam, although students may bring a calculator fulfilling CBS's "Rules for Using Electronic Aids During Written Examinations".
Assignment type Written assignment
Duration 3 hours
Grading scale 7-step scale
Examiner(s) One internal examiner
Exam period December/January, Provisional: The exam is held in December. The re-take is held in January.
Aids allowed to bring to the exam Limited aids, see the list below and the exam plan/guidelines for further information:
  • Allowed calculators
  • Allowed dictionaries
Make-up exam/re-exam
Same examination form as the ordinary exam
If the number of registered candidates for the make-up examination/re-take examination warrants that it may most appropriately be held as an oral examination, the programme office will inform the students that the make-up examination/re-take examination will be held as an oral examination instead.
Course content and structure
The class describes some of the main strategies used by active investors such as hedge funds and proprietary traders and provides a methodology to analyze them. In class and through exercises, the strategies are illustrated using real data and students learn to use “backtesting” to evaluate a strategy. The class also covers institutional issues related to liquidity, margin requirements, risk management, and performance measurement.
The class discusses the main strategies used by hedge funds in individual equity markets (equity long-short, equity market neutral, dedicated short bias), in tactical asset allocation of equity indices, currencies, fixed-income, and commodities (global macro, managed futures), and in relative-value arbitrage strategies (event driven investments, convertible bond arbitrage, fixed income arbitrage).
To analyze these active investment strategies, the class applies tools for performance measurement, backtesting, regression analysis, managing transaction costs, market liquidity risk, funding a strategy, margin requirements, risk management, drawdown control, and portfolio optimization. Also, the class discusses the economics underlying these strategies, why certain strategies might work and why others might not.

The class is quantitative. As a result of the techniques used in state-of-the-art investments, the class requires the students to work independently, analyze and manipulate real data, and use mathematical modeling.
Teaching methods
The course is based on lectures, including class discussion and problem solving. Students are expected to be prepared for class (including reading material and solving problem sets) and to participate actively in the discussion and problem solving.

The course has 36 class hours.
Further Information
Changes in course scheduel may occur
Wednesday 09.50-12.25, week 36-41, 43-48
Expected literature
The course aims at teaching the most recent hedge fund strategies from a rigorous academic perspective. The class is based on a new book written by prof. Lasse Heje Pedersen as well as a number of research papers.
Last updated on 07-05-2014