Cover -- Contents -- List of Tables -- List of Figures -- List of Color Plates -- Acknowledgments -- 1 Introduction -- 1.1 Tail Risk -- 1.2 Nonlinear Risks -- 1.3 Illiquidity and Serial Correlation -- 1.4 Literature Review -- 2 Basic Properties of Hedge Fund Returns -- 2.1 CS/Tremont Indexes -- 2.2 Lipper TASS Data -- 2.3 Attrition Rates -- 3 Serial Correlation, Smoothed Returns, and Illiquidity -- 3.1 An Econometric Model of Smoothed Returns -- 3.2 Implications for Performance Statistics -- 3.3 Estimation of Smoothing Profiles -- 3.4 Smoothing-Adjusted Sharpe Ratios -- 3.5 Empirical Analysis of Smoothing and Illiquidity -- 4 Optimal Liquidity -- 4.1 Liquidity Metrics -- 4.2 Liquidity-Optimized Portfolios -- 4.3 Empirical Examples -- 4.4 Summary and Extensions -- 5 Hedge Fund Beta Replication -- 5.1 Literature Review -- 5.2 Two Examples -- 5.3 Linear Regression Analysis -- 5.4 Linear Clones -- 5.5 Summary and Extensions -- 6 A New Measure of Active Investment Management -- 6.1 Literature Review -- 6.2 The AP Decomposition -- 6.3 Some Analytical Examples -- 6.4 Implementing the AP Decomposition -- 6.5 An Empirical Application -- 6.6 Summary and Extensions -- 7 Hedge Funds and Systemic Risk -- 7.1 Measuring Illiquidity Risk -- 7.2 Hedge Fund Liquidations -- 7.3 Regime-Switching Models -- 7.4 The Current Outlook -- 8 An Integrated Hedge Fund Investment Process -- 8.1 Define Asset Classes by Strategy -- 8.2 Set Portfolio Target Expected Returns -- 8.3 Set Asset-Class Target Expected Returns and Risks -- 8.4 Estimate Asset-Class Covariance Matrix -- 8.5 Compute Minimum-Variance Asset Allocations -- 8.6 Determine Manager Allocations within Each Asset Class -- 8.7 Monitor Performance and Risk Budgets -- 8.8 The Final Specification -- 8.9 Risk Limits and Risk Capital -- 8.10 Summary and Extensions -- 9 Practical Considerations.

9.1 Risk Management as a Source of Alpha -- 9.2 Risk Preferences -- 9.3 Hedge Funds and the Efficient Markets Hypothesis -- 9.4 Regulating Hedge Funds -- 10 What Happened to the Quants in August 2007? -- 10.1 Terminology -- 10.2 Anatomy of a Long/Short Equity Strategy -- 10.3 What Happened in August 2007? -- 10.4 Comparing August 2007 with August 1998 -- 10.5 Total Assets, Expected Returns, and Leverage -- 10.6 The Unwind Hypothesis -- 10.7 Illiquidity Exposure -- 10.8 A Network View of the Hedge Fund Industry -- 10.9 Did Quant Fail? -- 10.10 Qualifications and Extensions -- 10.11 The Current Outlook -- 11 Jumping the Gates -- 11.1 Linear Risk Models -- 11.2 Beta Overlays -- 11.3 Hedging Long/Short Equity Managers -- 11.4 Dynamic Implementations of Beta Overlays -- 11.5 Conclusion -- Appendix -- A.1 Lipper TASS Category Definitions -- A.2 CS/Tremont Category Definitions -- A.3 Matlab Loeb Function tloeb -- A.4 GMM Estimators for the AP Decomposition -- A.5 Constrained Optimization -- A.6 A Contrarian Trading Strategy -- A.7 Statistical Significance of Aggregate Autocorrelations -- A.8 Beta-Blocker and Beta-Repositioning Strategies -- A.9 Tracking Error -- References -- Index -- A -- B -- C -- D -- E -- F -- G -- H -- I -- J -- K -- L -- M -- N -- O -- P -- Q -- R -- S -- T -- U -- V -- W.