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Purpose – The purpose of this chapter is to present an investigation on the dynamic linkages between global macro hedge funds and traditional financial assets of developed and emerging markets.

Methodology/approach – To explore relationships among these price indices, we analyse Granger causality and vector autoregression (VAR) dynamics through impulse response functions. Besides, multivariate cointegration is used to know long-term relationships between assets and allows risk-averse investors to reduce uncertainty. Finally, a vector error correction model (VECM) provides active asset managers the opportunity to anticipate short-term price movements.

Findings – Our results show that in a Granger causality sense, we observe long- and short-term relationships between global macro hedge funds and traditional financial assets for Canada, France and Germany. This implies that opportunities for international portfolio diversification are significantly lower for countries having relationships between assets. For Canada, France and Germany, the risk-averse investors can reduce their long-term volatility by investing according to the cointegrating vector, whereas active managers can benefit from the knowledge of short-term asset price movements. The VEC Pairwise Granger causality in the short term confirms our analysis of causality according to VAR models.

Originality/value of paper – These results are original because they help the investor to understand the dynamics of the relationship between global macro hedge funds and traditional financial assets.

The purpose of this paper is to examine in which ways hedge funds contribute to financialization.

Two already identified conduits through which financialization operates are applied to hedge funds.

The paper finds that hedge funds drive the phenomenon of financialization in two major ways, i.e. the financialization of corporations, and the financialization of markets. Hence, hedge funds can be conceived as agents of change for financialization.

There are indications that hedge funds possess disciplinary power. Future research should address this pivotal point, even though such power will be difficult to prove empirically.

Hedge funds have been found to potentially increase market volatility. In times of crisis, stricter regulation of these investors that take excessive risks seems prudent.

Through linking “hedge funds” with “financialization” this paper closes a research gap. In addition, the so far rather structural debate about financialization benefits from the actor-centered approach of this paper.

During the global financial crisis of 2008–2009, most developed and emerging economies and financial markets have recorded important financial losses. Those economies have experienced momentous corrections, and their assets were significantly devaluated, implying many losses and bankruptcies for banks, investors, and firms. Overall, despite continuing efforts made by governments and central banks to support their financial systems, most financial markets (stock markets, derivative markets, monetary markets, and currency markets) have been strongly affected by this crisis. Furthermore, the rapid transmission of the US subprime crisis to several European and Asian developed and emerging countries and the transformation into a global financial and economic crisis have revealed a high level of financial integration and linkage with the US market. The financial shocks have also induced negative feedbacks to macroeconomic indicators, suggesting significant relationships between financial markets and macroeconomies.

This is the third and final installment introducing fundamental concepts to those convergence market participants who are less familiar with financial markets, instruments, and conventions. This installment focuses on foreign exchange and commodity markets.

The purpose of this paper is to shed light on the changing pattern and characteristics of international financial flows in the emerging entrepreneurial ecosystems of Sub-Saharan Africa (SSA), provide a novel taxonomy to classify and analyze them, and discuss how such investments contribute to competence building and sustainable development.

In an exploratory study, the authors analyze the characteristics of international venture capital investors and the start-ups receiving funding in Kenya and map their interaction. The authors proceed by developing a novel taxonomy, classifying investors according to their main rationales (for-profit-for-impact), and start-ups according to the locus of needs and markets addressed by the start-up (local-global) and the locus of the start-ups capacity and knowledge (local-global).

The authors observe a new type of mainly western investors who support innovative ideas in SSA by identifying and investing in domestically developed technical innovations with the potential to address global market needs. The authors find such innovations to be mainly developed at the intersect of global and local knowledge.

The authors shed light on the – up to now – under-researched emerging phenomenon of international high-tech investments in SSA, and develop a novel taxonomy of technology investments in low-income countries, guiding further research on the conditions, impact, practical, and policy implications of this new form of finance flows.

The author suggests an empirical model to analyze the investment style of individual hedge funds and fund of funds. This approach is based on a mixture of the style analysis approach suggested by Sharpe [1988], the factor push approach used in stress testing, and historical simulation. The parameter estimates from this model are inputs in the Value‐at‐Risk analysis for a sample of 2,934 funds over the 1994–2000 period. The in‐sample and out‐of‐sample results suggest that the proposed approach is useful and may constitute a valuable tool for assessing the investment style and risk of hedge funds.

Academic research has shown that diversification today may not only include stocks and bonds but also alternative investments like hedge funds. However, practical and effective methods to identify the hedge fund styles that really enhance the risk return characteristics of a traditional portfolio as well as optimal allocation sizes are not available. The aim of the paper is to try to close this gap by proposing a portfolio optimization approach based upon the traditional market exposures of the different hedge fund strategies.

For this purpose, the paper first measures the bull and bear market betas of the main hedge fund strategies (equity market neutral, event driven, global macro, relative value, and managed futures). Based on the strategy characteristics, the authors then develop a systematic framework that calculates what percentage of each basic asset should be substituted for by hedge fund strategies to achieve the maximum results. The paper uses hedge fund index data from Hedge Fund Research and Barclay Hedge for the January 1999‐April 2011 sample period.

The empirical results show that this approach leads to an improvement in the annualized return of the optimized portfolio.

The paper adds to the existing literature by showing that it is possible to substitute traditional assets with hedge fund indices based on their exposures (beta) in varying market environments as a way to optimize the overall portfolio.

Purpose – This research pinpoints the limitations of conventional models for evaluating the performance of hedge funds and attempts to provide a new framework for modeling the dynamics of risk structures of hedge funds.

Methodology/approach – This chapter aims to explore how the systematic risk exposures of hedge funds vary over time and depend on exogenous variables that managers are supposed to use in their dynamic investment strategies. To achieve this, we used a Bayesian time-varying CAPM-based beta model within a state space technology.

Findings – The results showed that the volatility, term spread rate, and shocks in liquidity influence significantly on the time variation of hedge funds. Besides, the dynamics of beta indicates that the transmission channels of systematic risk are mainly the leverage levels of hedge funds and liquidity shocks.

Originality/value of chapter – These results are original because they help to explain how expected and unexpected hedge fund returns are correlated with the systematic risk factors via the beta dynamics.

This study presents an investigation of the long and short‐term co‐movements between different hedge fund strategy indices and the stock markets of France, Germany, Japan, North America and the UK. To analyse relationships among these price indices, the EngleGranger methodology, based on bivariate testing for cointegration, and correlation analysis are conducted. The question of long‐term dependence instead of short‐term consideration is of particular interest, because portfolio optimization is based upon the cointegration of prices, rather than the correlation of returns. However, as is generally known, there is an information loss when returns are used instead of prices. Results indicate that there exists no station ary, long‐term relationship between the two as set groups. The overall suggestion is that opportunities exist to diversify an international portfolio by taking hedge funds into account. Moreover, this applies not only in terms of a limited time period, but also in the long‐run. Besides this main result, the augmented Dickey‐Fuller test statistics for cointegration residuals show quite different behaviour in comparison to the correlation co efficients. The values of the test statistics show that there seems to be a weaker tendency towards long‐term interrelation between hedge fund strategies and the US stock market. This applies even though average correlation co efficients among these assets exceed those of other combinations between stock and hedge fund indices.