Brett Arends recently wrote a piece for MarketWatch in which he expressed the opinion that hedge funds are a sucker’s bet. He bases his argument on a fascinating study called Higher Risk, Lower Returns: What Hedge Fund Investors Really Earn that was published in 2009. The authors of the study, professors from Emory University and Harvard, came to the conclusion that hedge fund investors would have (on average) been better off buying an S&P500 Index fund. So, if hedge funds have performed as badly as this academic study suggests, why have assets invested in hedge funds skyrocketed over the past 20 years? Continue reading
Yale Professor William Goetzmann draws a parallel between the commercial mortgage-backed securities of recent years, and a real estate bond boom in the 1920s. A boom he argues led to the stock market crash of 1929.
“By nearly every measure,” he and his co-author notes, “real estate securities were as toxic in the 1930s as they are now.”
In an interesting paper from the National Bureau of Economic Research, he and Frank Newman, a former research assistant at the Yale School of Management, dig into the bonds that financed the greatest boom in the building of skyscrapers ever. In 1925, 23% of all corporate debt were these bonds. Nine years later, the entire class of investments had nearly vanished. Continue reading