This article appears courtesy of Global Investor.
The concept of synthetic hedge funds, whereby hedge fund returns are replicated, has been extended to the FX asset class.
Hedge fund replication goes back to at least 2005 when in June of that year Harry Kat and Helder Palaro, of the Cass Business School in London, issued a paper (Hedge Fund Returns: You Can Make Them Yourself!) in which they revealed that by dynamically trading futures in much the same way as investment banks hedge their OTC option positions it is possible to generate returns that are statistically very similar to the returns generated by hedge funds.
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