Discover

News & Info

What is Global Macro Hedge Fund?

966 reads · Last updated: December 5, 2024

Global macro hedge funds are actively managed funds that attempt to profit from broad market swings caused by political or economic events. Global macro hedge funds are market bets around economic events. Investors use financial instruments to create short or long positions based on the outcomes they predict as a result of their research. A market bet on an event can cover a wide variety of assets and instruments including options, futures, currencies, index funds, bonds, and commodities. The goal is to find the right mix of assets to maximize returns if the predicted outcome occurs.

Definition

Global macro hedge funds are actively managed funds that aim to profit from broad market fluctuations caused by political or economic events. Investors use financial instruments to establish short or long positions based on their research and predicted outcomes.

Origin

The concept of global macro hedge funds originated in the 1980s when investors began leveraging global economic events for market bets. George Soros was one of the pioneers in this field, famously shorting the British pound in 1992.

Categories and Features

Global macro hedge funds are typically categorized into two strategies: event-driven and trend-following. Event-driven strategies focus on specific economic or political events, while trend-following strategies focus on long-term market trends. Both utilize a diversified asset mix, including options, futures, currencies, index funds, bonds, and commodities, to maximize returns.

Case Studies

A famous case is George Soros's Quantum Fund shorting the British pound in 1992, successfully predicting the UK's exit from the European Exchange Rate Mechanism, earning over $1 billion in profit. Another example is the Paulson Fund, which gained significant profits during the 2007-2008 financial crisis by shorting the subprime mortgage market.

Common Issues

A common issue investors might face when using global macro hedge funds is the accuracy of market predictions. Incorrect predictions can lead to significant losses. Additionally, market volatility and political uncertainty can also impact the fund's performance.

Suggested for You

Refresh

Trailing 12 Months

Trailing 12 Months (TTM) is a financial term that measures a company's performance over the past 12 consecutive months. This calculation is not limited to the company's fiscal year and can provide more timely performance data, applicable for calculating various financial metrics such as earnings, Earnings Per Share (EPS), Price-to-Earnings Ratio (P/E), and yield.

Trailing 12 Months

Trailing 12 Months (TTM) is a financial term that measures a company's performance over the past 12 consecutive months. This calculation is not limited to the company's fiscal year and can provide more timely performance data, applicable for calculating various financial metrics such as earnings, Earnings Per Share (EPS), Price-to-Earnings Ratio (P/E), and yield.

Dividend Discount Model

The dividend discount model (DDM) is a quantitative method used for predicting the price of a company's stock based on the theory that its present-day price is worth the sum of all of its future dividend payments when discounted back to their present value.It attempts to calculate the fair value of a stock irrespective of the prevailing market conditions and takes into consideration the dividend payout factors and the market expected returns. If the value obtained from the DDM is higher than the current trading price of shares, then the stock is undervalued and qualifies for a buy, and vice versa.

Dividend Discount Model

The dividend discount model (DDM) is a quantitative method used for predicting the price of a company's stock based on the theory that its present-day price is worth the sum of all of its future dividend payments when discounted back to their present value.It attempts to calculate the fair value of a stock irrespective of the prevailing market conditions and takes into consideration the dividend payout factors and the market expected returns. If the value obtained from the DDM is higher than the current trading price of shares, then the stock is undervalued and qualifies for a buy, and vice versa.

Compound Annual Growth Rate

The compound annual growth rate (CAGR) is the rate of return (RoR) that would be required for an investment to grow from its beginning balance to its ending balance, assuming the profits were reinvested at the end of each period of the investment’s life span.CAGR provides a concise way to assess the overall performance of an investment over a period of time, regardless of fluctuations over time. Although CAGR is a useful metric, it may not fully reflect the actual compounding effect over the period, especially when the ROI fluctuates greatly.

Compound Annual Growth Rate

The compound annual growth rate (CAGR) is the rate of return (RoR) that would be required for an investment to grow from its beginning balance to its ending balance, assuming the profits were reinvested at the end of each period of the investment’s life span.CAGR provides a concise way to assess the overall performance of an investment over a period of time, regardless of fluctuations over time. Although CAGR is a useful metric, it may not fully reflect the actual compounding effect over the period, especially when the ROI fluctuates greatly.

Fibonacci Retracement

Fibonacci retracement levels, stemming from the Fibonacci sequence, are horizontal lines that indicate where support and resistance are likely to occur. Each level is associated with a specific percentage, representing the degree to which the price has retraced from a previous move. Common Fibonacci retracement levels include 23.6%, 38.2%, 50%, 61.8%, and 78.6%. These levels can be drawn between any two significant price points, such as a high and a low, to predict potential reversal areas. Fibonacci numbers are prevalent in nature, and many traders believe they hold significance in financial markets as well. Fibonacci retracement levels were named after the Italian mathematician Leonardo Pisano Bigollo, better known as Leonardo Fibonacci, who introduced these concepts to Western Europe but did not create the sequence himself.

Fibonacci Retracement

Fibonacci retracement levels, stemming from the Fibonacci sequence, are horizontal lines that indicate where support and resistance are likely to occur. Each level is associated with a specific percentage, representing the degree to which the price has retraced from a previous move. Common Fibonacci retracement levels include 23.6%, 38.2%, 50%, 61.8%, and 78.6%. These levels can be drawn between any two significant price points, such as a high and a low, to predict potential reversal areas. Fibonacci numbers are prevalent in nature, and many traders believe they hold significance in financial markets as well. Fibonacci retracement levels were named after the Italian mathematician Leonardo Pisano Bigollo, better known as Leonardo Fibonacci, who introduced these concepts to Western Europe but did not create the sequence himself.

Log-Normal Distribution

The Log-Normal Distribution is a statistical distribution where a random variable is said to follow a log-normal distribution if the logarithm of the variable is normally distributed. This type of distribution is often used to model positively skewed data occurring in various natural and social phenomena, such as income, city populations, stock prices, etc.

Log-Normal Distribution

The Log-Normal Distribution is a statistical distribution where a random variable is said to follow a log-normal distribution if the logarithm of the variable is normally distributed. This type of distribution is often used to model positively skewed data occurring in various natural and social phenomena, such as income, city populations, stock prices, etc.

Order Driven Market

An order-driven market is a financial market where all buyers and sellers display the prices at which they wish to buy or sell a particular security, as well as the amounts of the security desired to be bought or sold. This kind of trading environment is the opposite of a quote-driven market, which only displays bids and asks of designated market makers and specialists for the specific security that is being traded.

Order Driven Market

An order-driven market is a financial market where all buyers and sellers display the prices at which they wish to buy or sell a particular security, as well as the amounts of the security desired to be bought or sold. This kind of trading environment is the opposite of a quote-driven market, which only displays bids and asks of designated market makers and specialists for the specific security that is being traded.