Hedge funds I) are appropriate as a sole investment vehicle for an investor.
II. should only be added to an already well-diversified portfolio.
III. pose performance-evaluation issues due to nonlinear factor exposures.
IV. have down-market betas that are typically larger than up-market betas.
V. have symmetrical betas.

Question

Quizplus · Accepted Answer

Hedge funds are typically recommended to be added to an already well-diversified portfolio rather than as a sole investment vehicle, as they can be high-risk and volatile. Performance evaluation of hedge funds can be challenging due to nonlinear factor exposures, and their down-market betas are typically larger than up-market betas. However, their betas are not necessarily symmetrical.

Hedge Funds I) Are Appropriate as a Sole Investment Vehicle