HEDGE FUND PROJECT MGTF 406 Behavioral Finance
Purpose:
The purpose of the Hedge Fund Project is to use your new-found data skills (SAS and WRDS)
to propose a trading strategy to an investment committee. The project is intended to have you
think creatively about available data sources and the potential mistakes investors make. It should
also make you think practically about the obstacles arbitrageurs face when developing and
executing trading strategies.
Description:
The Hedge Fund Project will have two deliverables. The first deliverable is a 3-to-5 page report
to the investment committee. The memo should:
I. Summarize the trading strategy idea
II. Provide empirical evidence of profitability from the strategy using the techniques we’ve
discussed in class
III. Describe any concerns about the viability of the strategy
IV. Discuss robustness of the strategy (e.g., risk-adjustments, different samples, subsamples,
cross-sectional analysis, etc.)
V. Discuss behavioral phenomena that might lead to the observed mispricing
The second deliverable is a class presentation. The presentations should cover the same material
in the memo, with the purpose of convincing an audience (the investment committee) to allocate
capital to the strategy. As there are approximately 90 students in the class, each student in the
group should present for between 1 to 2 minutes in order for all presentations to be completed
within the week 10 class on June 12th.
Evaluation:
The memo and presentation will be evaluated based on the creativity of the idea and the quality
of the analysis. The best trading strategy proposals will pitch unique ideas whose trading profits
appear robust and reliable in historical data.