Date of Award

Fall 10-31-2016

Degree Name

Doctor of Business Administration (DBA)

Advisor(s)

Dr. Halil Kiymaz

Second Advisor

Dr. Bill Seyfried

Abstract

Hedge funds are not the return engines of the past and, at the same time, some mutual funds are shown to have higher risk adjusted returns than they did historically, but no overlapping sub-sets of the two were found. The fund types were found to maintain distinct fund populations, which touched and crossed at points but no sustained overlapping or merging occurred to form a hybrid fund type. However, it is argued that a role may now be available for mid-level of risk funds, essentially hybrid funds which could be created. Hedge funds, as an innovative, agile, albeit riskier, investment vehicle, have a role to play in the financial markets, as do conservative safer mutual funds, and these roles should be maintained but have been diluted by new regulation. Historically financial regulation is in place to protect the investor and maintain financial market stability. Examination of the effects of financial industry regulatory changes, including non-fund specific regulations, on important drivers of fund return showed, that these changes have influenced both hedge funds and mutual funds risk and return profiles, but that fund-specific regulation is best at investor protection. Proposed changes in accredited investor regulation and Security and Exchange Commission concerns about riskier mutual funds leading to other regulation changes, will create a void of investment fund choice for a substantial number of current investors in both hedge funds and mutual funds that could be satisfied by a third class of funds. Past investor protection regulation defined hedge funds and mutual funds and can be used, in the future, to define the three fund types. Fund-specific direct regulation is proposed that protects their investor bases through scaled accredited investor requirements, allowed leverage ratios, liquidity and disclosure requirements, according to the increasing risk profiles of mutual funds through hybrid funds to hedge funds. In addition, the continued indirect regulation of fund counterparties, particularly banks, for increased investor protection and systemic financial industry protection is endorsed.

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