What is the Difference Between a Cross-Sectional and a Time-Series Model? (Essay Sample)

Alternative Investment 5
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What is the common name for a comparison group of funds with similar risk and return objectives and characteristics?
Peer group. It can also be called a comparison group
What is the difference between a cross-sectional and a time-series model?
Cross-sectional model involves the observation from different groups or individuals at give point of time. It compares one corporation to another corporation and to industry average. For instance, if one takes into consideration of the closing prices of a group of stock exchange firms on December 31, 2014 it will be an example of using cross sectional data. While time series involves a set of observations obtained or collected at a distinct and equally spaced time. The model compares a single corporation across time (Rich, Jones, Mowen, & Hansen, 2009). For instance, it compares the daily closing price of a product in a particular shop, for the last one month.
What are the three considerations in determining whether a benchmark is suitable?
In determining whether a benchmark is suitable, the benchmark should be able to reflect the amount or level of risk that an investor is willing to take. In this regard, it should be able to clearly convey the financial or economic realities related to the underlying interests of the investor. It should reflect the amount that the investor is supposed to invest in. Sufficient data to represent these must be provided and the information provided must be bona fide. Additionally, a suitable benchmark should reflect the cost that the investor is supposed and willing to pay. Finally, it must have sufficient transparency on the calculations, methodology used to enable investors understand how it was derived and its possible limitations. Therefore the considerations to determine its suitability include representative, reliability, and transparency.
What are the three primary elements of hedge funds?
The first element of hedge fund is that they are privately organized and generally unlisted. They are designed to pool the resources of sophisticated investors and provide opportunities that are not available through traditional or regulated pools. Second, hedge funds typically offer incentive-based fees to attract and motivate top managers. Third, hedge funds typically allow one or more aspects of greater investment flexibility than traditional investment vehicles (Jonathan, Anson, & Association, 2012).
What is a high watermark?
The HWM (High Water Mark) is the highest NAV (Net Asset Value) of the fund in which incentive fee is paid or has been paid.
What is the typical hedge fund fee structure?
In typical hedge fund structure, hedge fund managers charge a fee to the asset management based on the net asset fund. The asset management fee is usually between one percent and two percent of the net assets funds. The fee is typically charged every month or on a quarterly basis. It therefore differs from other investment vehicles. The ...