Petri Jylhä's DSc doctoral dissertation "Essays on the Economics of Hedge Funds" at the Aalto University School of Business has been awarded the first prize in the OP-Pohjola Group Research Foundation Doctoral Thesis competition.
The award is worth EUR10,000.
The doctoral dissertation consists of four essays that examine hedge funds from various perspectives. Hedge funds refer to funds which often involve high risks and seek to increase their returns in all market conditions.
The first essay investigates hedge fund operations in international financial markets. Based on the results, funds generally engage in traditional interest rate differential trading, which involves borrowing funds in low-interest currencies and investing in high-interest currencies.
The funds may grow so large that their trades in currency markets affect exchange rates and interest rates. Such was the case in autumn 2008 when capital drain from hedge funds strengthened the Japanese yen and weakened many high-interest currencies.
The second essay demonstrates that hedge funds provide liquidity on the stock market. The results show that funds buy stocks that other investors want to sell and sell stocks that others want to buy. Thus, hedge funds improve market liquidity and reduce fluctuations in share prices.
The third essay shows that capital flows have a significant impact on hedge fund yields. When investors invest capital in funds, the existing investments grow, which in turn increases the value of the investments in the fund.
The fourth essay examines hedge fund return reporting. According to the results, some hedge funds misreport their return figures at times in order to advance their own cause. Misreporting can artificially increase the size of a fund and allow for invoicing of higher commissions or, for example, revise return history to make it more attractive for new investors.
The award-winning doctoral dissertation was approved in the academic year 2011-12 and was rated as a high-grade study by its examiners. The board of OP-Pohjola Group Research Foundation selected the winner.