Answer-first summary for fast verification
Answer: Fund 1
## Explanation **Fund 1** is most likely using less liquid instruments because: - **Higher first-order serial autocorrelation (21%)** indicates smoother returns, which is characteristic of strategies using illiquid instruments. Illiquid assets are typically marked to model rather than market prices, creating serial correlation in returns. - **Lower Sortino ratio (0.8)** suggests poorer risk-adjusted returns when considering downside risk, which can occur with illiquid strategies. - **Maximum drawdown (18%)** is moderate but the key indicator is the high serial correlation, which is a well-known characteristic of illiquid investments. Funds using liquid instruments typically show: - Lower serial correlation - Higher Sortino ratios - More volatile but accurate pricing
Author: LeetQuiz Editorial Team
Ultimate access to all questions.
62 An analyst gathers the following information about multi-strategy hedge fund returns:
| Fund | Annualized Sortino Ratio | First-Order Serial Autocorrelation (Rho) | Maximum Drawdown |
|---|---|---|---|
| 1 | 0.8 | 21% | 18% |
| 2 | 0.9 | 16% | 20% |
| 3 | 1.0 | 12% | 16% |
Which fund is most likely to be running strategies using less liquid instruments?
A
Fund 1
B
Fund 2
C
Fund 3
No comments yet.