Common hedge-fund conventions include, "large funds underperform small funds," "young funds outperform old funds," and the use of simple monthly returns compounded over 12 periods. The analysts do not follow these conventions. While standard deviation is a common convention for calculating the risk of equity and debt investments, downside deviation is commonly used for hedge funds. As such, Hollis' measure of fund risk is in keeping with hedge-fund convention. (Study session 13, LOS 31.s) |
