Question

Question text
Why is it harder to assess the performance of a hedge fund portfolio manager than that of a typical investment fund manager?
Please select ONE option:
Select one:
A Tail events do not skew the distribution of hedge fund outcomes, making it very easy to obtain a representative sample of returns over relatively short periods of time.
B Tail events skew the distribution of hedge fund outcomes, making it very easy to obtain a representative sample of returns over relatively short periods of time.
C Tail events skew the distribution of hedge fund outcomes, making it difficult to obtain a representative sample of returns over relatively short periods of time.
D Tail events do not skew the distribution of hedge fund outcomes, making it difficult to obtain a representative sample of returns over relatively short periods of time.

Answer 1

Answer:- Option (C):- Tail events skew the distribution of hedge fund outcomes, making it difficult to obtain a representative sample of returns over relatively short periods of time.

Explanation:- A tail risk event occurs when the investment value fluctuates away from its mean by more than three standard deviations. So, tail events skew the distribution of hedge fund outcomes. Because of this fluctuations, it becomes difficult to obtain a representative sample of returns. Additionally, there are a number of factors that make it harder to assess the performance of a hedge fund portfolio manager than a typical investment fund manager mostly because hedge funds tend to invest in more illiquid assets.