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The prospective low risk hedge fund capital allocation line model: evidence from the debt market

Darko B. Vukovic () and Victor Prosin ()
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Darko B. Vukovic: National Research University, Higher School of Economics, Russian Federation
Victor Prosin: National Research University, South Ural State University, Russian Federation

Oeconomia Copernicana, 2018, vol. 9, issue 3, 419-439

Abstract: Research background: Institutional investors such as: commercial banks, pension funds, and insurance companies are constantly looking for low-risk stable investment opportunities, whereas one of the solutions can be a simulated portfolio. This research takes a look at the incentive to invest in government debt portfolios, as it can outperform the returns of deposit accounts. Purpose of the article: This study considers several classic methods of portfolio constriction and includes the basis of debt instruments that have not been a research topic for a long period of time. At the same time, this paper analyzes the classic methods of modern portfolio theory with a Sharpe ratio as an indicator of efficiency. Methods: The constructed portfolio consists of four elements from different countries: two government obligations and two bond indexes, aiming to employ international diversification. All the data was collected for the period of 12 years in order to represent the consequences of accrued recessions. Findings & Value added: The past two severe financial crises created a higher demand for stable investments, and more investors are ready to compromise a higher return for it. There-fore, the results of this paper represent a simulation of low-risk hedge fund portfolio construction with the use of highly rated debt instruments.

Keywords: portfolio; Sharpe ratio; risks; hedge fund; capital allocation line model (search for similar items in EconPapers)
JEL-codes: G11 G12 G23 (search for similar items in EconPapers)
Date: 2018
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