What are the changes in investment strategies of European hedge funds during crises of the 2000s, and how have these changes affected theirperformance and risk profile?

Abstract

This thesis investigates the shifts in investment strategies among European hedge funds during the financial crises of the 2000s, specifically focusing on how these changes have influenced their performance and risk profiles. The study spans three major financial crises: the dot-com bubble, the 2007-2008 global financial crisis, and the COVID-19 pandemic, examining the adaptive strategies hedge funds employed to navigate these turbulent periods.

The research employs a quantitative methodology, utilizing an extensive dataset from financial databases like Thomson Reuters and Eurekahedge. Key performance metrics such as the Sharpe ratio, Value at Risk (VaR), and maximum drawdown are used to evaluate the effectiveness of different hedge fund strategies before, during, and after these crises. The analysis is further supported by advanced models, including the Seven Factors ABS Model and the JKKT Model, which are used to assess the risk-adjusted performance of these funds.

The findings reveal that hedge funds displayed significant strategic agility, adapting their portfolios in response to the evolving economic landscape. However, the extent of their success varied across different strategies and periods. The study concludes that while some hedge fund strategies effectively mitigated risks and capitalized on market opportunities, others were less successful, highlighting the importance of strategic flexibility in the hedge fund industry.

This research contributes to the academic literature by providing a detailed analysis of hedge fund behavior in crisis contexts, offering insights for investors, fund managers, and policymakers on managing and mitigating risks associated with hedge fund investments during economic downturns.