medium · FRM Part 2 Risk & Investment Management
A hedge fund specializes in merger arbitrage, a strategy that typically has frequent small gains and rare large losses.
If the fund reports an AR(1) of 0.35 and a Sharpe ratio of 1.5, what 'technology' of Sharpe-inflation is likely being used alongside return smoothing?
- Low-beta anomaly exploitation
- High turnover (High Breadth)
- Negative skewness (Short Option profile)
- Positive skewness (Long Convexity)
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