Looking for honour and glory: How hedge funds try to predict and profit from financial crashes

• Autor(a) principal: Freire, Diogo Almeida
• Data de Publicação: 2023
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10071/29638
• topic: Hedge funds; Crise financeira -- Financial crisis; Financial Markets; Investing; Mercado financeiro; Investimentos

Financial crashes tend to be the bogeyman of adults. They show-up unannounced, can be scary, and not often, leave people worse than they were before. Nevertheless, not everyone loses when a crash happens. In fact, during the last two crashes some hedge funds were having their best returns ever. It’s by acknowledging this and wanting to know how they did it, that’s this work starts. Hence our main research question: how hedge funds attempt to predict and profit from financial crashes? In short, the methodology relied heavily on an exhaustive literature review and findings juggling both quantitative data (read newspaper articles, SEC reports, 13k fillings, books, etc) and qualitative data (measure returns and AUM performance). By doing so, we came to the conclusion that there isn’t any secret recipe to make money while everyone is losing. In fact, there are several, ranging from: a) Antifragile funds: take asymmetric risks that a crash will happen every year. b) Spot-on funds: those who through their research skills happen to predict the crash and adapt accordingly. c) Silver platter funds: those who through external reasons happen to come across intel about a potential crash, do their research, and adapt accordingly. History shows us that crashes have been cyclical and there’s a likelihood they will keep happening. Other studies have shown that missing the worst days of the stock market its better than just guessing the best days. As so, we hope that by showing how these hedge funds did it, to pass along some helpful ideas to academia, investors and everyone who loves finance.