OPTIMAL PORTFOLIO CONSTRUCTION BY MIXING HEDGE FUND

The returns of the hedge fund are declining in recent years, accompanying with the impact of the financial crisis in 2008. There will be a question that whether the hedge fund can still be used to blend in a conventional portfolio to improve the performance. Our paper focuses on the comparison analysis and does the basic asset allocation for the hedge fund and traditional portfolio. We analyze the risk-adjusted returns for conventional assets of US Equities, EAFE Equities, US Bonds and International Bonds as well as the hedge fund. Finally we find that, under current market condition, hedge fund is still an ideal alternative asset for the choice of the portfolio to increase the risk-adjusted return level.