1. What is the primary advantage of investing in mutual funds?
A. Guaranteed returns
B. Instant diversification
C. No transaction costs
D. Tax-free income
Mutual funds offer instant diversification, which helps spread risk across sectors and asset classes.
2. Which type of mutual fund is most common in the U.S. market?
A. Open-end mutual funds
B. Closed-end mutual funds
C. Exchange-traded funds
D. Hybrid funds
Open-end mutual funds account for more than 98% of U.S. mutual fund assets, making them the most common.
3. What happens when new investors purchase shares in an open-end mutual fund?
A. Fund performance improves
B. Fund manager changes
C. Number of shares increases
D. NAV becomes fixed
In open-end funds, the number of shares increases as new investors purchase shares.
4. How do investors redeem their investment in an open-end mutual fund?
A. Through a stock exchange
B. By selling to other investors
C. Via fund manager's discretion
D. Directly from the fund company
Investors redeem their open-end mutual fund shares directly from the fund company.
5. Which type of fund invests only in short-term interest-bearing instruments?
A. Money market funds
B. Equity funds
C. Bond funds
D. Hybrid funds
Money market funds invest in instruments like Treasury bills and commercial paper, which are short-term.
6. Which category of mutual funds blends stock and bond investments?
A. Equity funds
B. Hybrid funds
C. Bond funds
D. Money market funds
Hybrid funds are designed to combine both equity (stocks) and debt (bonds) in one fund.
7. What do equity funds primarily invest in?
A. Commercial papers
B. Corporate bonds
C. Stocks
D. Treasury bills
Equity funds invest exclusively in stocks, offering various styles like index and sector-specific funds.
8. What does a high tracking error in an index fund indicate?
A. Poor index tracking performance
B. Strong fund manager skills
C. Reduced diversification
D. Increase in asset size
A higher tracking error means the fund deviates more from the benchmark index, showing poor tracking.
9. Which of the following is NOT typically included in money market fund investments?
A. Treasury bills
B. Commercial paper
C. Banker’s acceptances
D. Corporate stocks
Money market funds do not invest in stocks; they focus on short-term, low-risk debt instruments.
10. Why are mutual funds attractive for investors who lack time or expertise?
A. High guaranteed returns
B. Professional management and diversification
C. No associated costs
D. Tax exemptions
Mutual funds provide access to expert fund management and diversification benefits for passive investors.
11. How is the Net Asset Value (NAV) of an open-end mutual fund calculated?
A. By dividing the fund's annual return by the total investments
B. By subtracting liabilities from assets and dividing by shares outstanding
C. By multiplying total assets with total liabilities
D. By dividing annual income by total shares
NAV is calculated by subtracting the fund’s liabilities from its assets and dividing by the number of shares outstanding.
12. When do open-end mutual funds calculate their NAV?
A. Every hour during trading
B. At the beginning of each trading day
C. After the market closes at 4:00 pm in New York
D. Before each buy or sell order is processed
NAV is calculated only after the market closes at 4:00 pm in New York.
13. Why can't investors place stop or limit orders in open-end mutual funds?
A. Because the transaction price is unknown until after market close
B. Because stop/limit orders are not permitted by SEBI
C. Because mutual funds do not involve share trading
D. Because only market orders are allowed on the NYSE
Since NAV is determined only after market close, investors don’t know the transaction price in advance, preventing the use of stop or limit orders.
14. How are taxes handled for open-end mutual fund investors?
A. Taxes are not applicable unless investors redeem their holdings
B. Only dividends are taxed, capital gains are tax-free
C. Taxes apply only at year-end distribution
D. Investors are taxed as if they owned the underlying securities directly
Open-end fund investors are taxed on dividends and capital gains as if they owned the underlying investments directly.
15. What are the two main types of sales charges in open-end mutual funds?
A. Transaction charge and holding charge
B. Entry fee and redemption fee
C. Front-end load and back-end load
D. Service fee and dividend charge
Sales charges may be imposed when entering (front-end load) or exiting (back-end load) a mutual fund.
16. What does the management fee in a mutual fund primarily cover?
A. Operational costs and salaries of the management team
B. Investors' capital appreciation
C. Reinvestment of capital gains
D. NAV calculation costs
The management fee is used to cover operational expenses and pay the fund’s management team.
17. What is the expense ratio in mutual funds?
A. Total annual return divided by assets
B. Annual management fee divided by assets under management
C. Total income divided by expenses
D. NAV divided by market price
Expense ratio represents the annual management fee as a percentage of assets under management.
18. Why do index funds generally have lower management fees?
A. They invest in foreign markets
B. They charge higher front-end loads
C. They require less active management compared to actively managed funds
D. They don’t distribute capital gains
Index funds follow a passive investment strategy, requiring less management involvement and therefore lower fees.
19. What happens to the number of shares outstanding when an investor purchases shares in an open-end mutual fund?
A. New shares are created, increasing the total number of shares
B. The total number of shares remains static
C. The number of shares decreases
D. Shares are split equally among existing investors
In an open-end fund, new shares are created when investors purchase shares, increasing the total number of shares outstanding.
20. How are shares of a closed-end mutual fund typically bought or sold?
A. By redeeming them directly with the fund company
B. Through transactions with other investors on an exchange
C. Only during NAV declaration periods
D. Through authorized broker-dealers only
Closed-end fund shares are traded between investors in the secondary market, similar to stocks.
21. Which of the following is TRUE regarding investment positions in open-end funds?
A. Both long and short positions can be taken
B. Only short positions are allowed
C. Only long positions are allowed
D. No positions can be taken
Open-end mutual funds allow only long positions as investors buy shares from and sell shares to the fund company.
22. Which of the following is a key feature of closed-end mutual funds?
A. Shares can trade at prices different from their NAV
B. Shares are always traded at NAV
C. Shares can only be traded once a day
D. New shares are issued for each purchase
Closed-end funds trade on the market and can be bought or sold at a premium or discount to NAV.
23. What is a common reason closed-end funds trade at a discount to their NAV?
A. Lack of investor interest
B. Market manipulation
C. Day trading strategies
D. Management fees associated with the fund
One of the most cited reasons for the discount is the presence of management fees, which reduce the value investors place on the fund.
24. Which of the following trading features applies to closed-end mutual funds but not to open-end funds?
A. Transactions at the end-of-day NAV
B. Use of stop orders and limit orders
C. Redemption directly from the fund company
D. Issuance of new shares per transaction
Closed-end funds trade like individual stocks throughout the day and allow tools like stop-loss and limit orders.
25. How are Exchange-Traded Funds (ETFs) created?
A. By depositing shares and receiving ETF units in return
B. By redeeming bonds from the fund house
C. By trading futures contracts
D. By issuing promissory notes to investors
ETFs are typically created when institutional investors deposit a basket of shares with the ETF provider and receive ETF units in exchange.
26. What feature do ETFs share with closed-end funds?
A. They always trade at a discount to NAV
B. They cannot be traded during market hours
C. They are traded on the stock exchange throughout the day
D. They are issued only once a year
Like closed-end funds, ETFs are traded on the open market throughout the trading day, allowing real-time pricing and execution.
27. What is one key difference between ETFs and closed-end funds?
A. ETFs never allow diversification
B. ETFs typically trade close to their NAV, while closed-end funds may not
C. ETFs can only be redeemed by the fund house
D. Closed-end funds are passively managed only
ETFs generally trade at prices close to their NAV due to the arbitrage mechanism, while closed-end funds often trade at premiums or discounts.
28. Which of the following features is commonly associated with ETFs?
A. Actively managed portfolios only
B. Delayed quarterly portfolio disclosures
C. Restriction from intra-day trading
D. Ability to use stop orders, limit orders, and short selling
ETFs allow real-time trading and support strategies like stop orders, limit orders, and in some cases, short selling.
29. What is a key advantage of ETFs over open-end mutual funds in terms of transparency?
A. ETFs disclose their holdings twice daily
B. ETFs disclose their holdings annually
C. Open-end funds disclose their holdings twice daily
D. Both disclose their holdings at the same frequency
ETFs provide a high level of transparency by disclosing their portfolios twice each trading day, compared to infrequent disclosures by open-end funds.
30. Which of the following best describes the SPDR S&P 500 (SPY)?
A. An open-end bond fund
B. A closed-end commodity fund
C. A well-known ETF tracking the S&P 500
D. A real estate investment trust (REIT)
SPDR S&P 500 (SPY) is one of the most recognized ETFs in the market, designed to track the performance of the S&P 500 index.
31. What is 'late trading' in the context of mutual funds?
A. Submitting trades at 10:00 AM the next day
B. Selling shares after NAV is fixed for the day
C. Trading during market holidays
D. Accepting orders after the 4:00 PM cutoff time
Late trading refers to accepting trade orders after the official 4:00 PM market close, which is illegal due to the possibility of taking advantage of post-market news.
32. Why is market timing a concern for mutual funds?
A. It can lead to sudden fund size fluctuations, forcing funds to hold more cash
B. It prevents mutual funds from accepting new investments
C. It leads to immediate fund dissolution
D. It increases management fees substantially
Market timing may cause large inflows or redemptions, forcing funds to hold more liquid assets like cash, which can reduce overall returns for long-term investors.
33. Which of the following is true about market timing?
A. It is strictly illegal and punishable by law
B. It always benefits long-term investors
C. It is not illegal but may concern regulators
D. It ensures NAV is always accurate
Market timing is not illegal, but it can distort fund performance and operations, drawing scrutiny from regulators if exceptions are made.
34. What is 'front running' in mutual fund trading?
A. Trading after a mutual fund executes a large order
B. Trading ahead of a known upcoming mutual fund trade for personal gain
C. Executing trades on behalf of clients without consent
D. Using margin funds to buy mutual fund units
Front running involves using confidential information about an upcoming trade by a mutual fund to make personal or client trades beforehand, and it is illegal.
35. Which trading behavior is considered illegal and subject to prosecution?
A. Market timing
B. Directed brokerage
C. Front running
D. Holding liquid assets
Front running is illegal because it involves using insider knowledge for personal or favored trading before a major fund order is executed.
36. What does 'directed brokerage' typically involve?
A. Front running by a third-party broker
B. Execution of trades by retail investors
C. Allocation of fund returns to preferred clients
D. A mutual fund directing trades to a broker in return for client investments
Directed brokerage is a practice where a fund directs trades to brokers who, in exchange, channel their clients to invest in the fund. Though not illegal, it's discouraged.
37. What information is required to calculate the Net Asset Value (NAV) of a mutual fund?
A. Only the market value of securities held
B. Daily stock exchange closing prices
C. Fund’s assets, liabilities, and total shares outstanding
D. Number of investors and fund manager’s fees
The NAV is calculated using the total value of fund assets minus liabilities, divided by the number of shares outstanding.
38. Which of the following best describes how the NAV is computed?
A. (Fund Assets − Fund Liabilities) ÷ Total Shares Outstanding
B. Fund Assets × Total Shares Outstanding
C. Total Shares Outstanding ÷ Fund Assets
D. (Fund Assets + Liabilities) ÷ Number of Investors
The NAV is calculated by subtracting the fund’s liabilities from its assets and dividing the result by the number of outstanding shares.
39. Why is NAV important to investors in mutual funds?
A. It determines the management fee of the fund
B. It represents the per-share value of the fund’s assets
C. It indicates how many units are left to sell
D. It is used to calculate brokerage commissions
The NAV reflects the value of one share of the mutual fund and is essential for investors to know the current worth of their holdings.
40. Which of the following is a key difference between hedge funds and mutual funds?
A. Hedge funds are available only to wealthy and institutional investors
B. Mutual funds use more leverage than hedge funds
C. Mutual funds are exempt from disclosure requirements
D. Hedge funds are required to publish NAV daily
Hedge funds are limited to sophisticated or institutional investors and are not as regulated as mutual funds.
41. What investment strategy flexibility do hedge funds have that mutual funds do not?
A. Investing in only government securities
B. Holding assets in cash equivalents only
C. Using both long and short positions along with leverage
D. Buying only large-cap stocks
Hedge funds can use short selling and leverage strategies that are typically not allowed for mutual funds.
42. Why do hedge funds typically have a lockup period for investors?
A. To prevent early redemptions for tax purposes
B. Due to government regulations
C. To calculate NAV more accurately
D. Because hedge fund assets may be illiquid and difficult to sell quickly
Many hedge fund investments are illiquid or based on long-term strategies, requiring time to properly unwind trades.
43. How is the typical hedge fund fee structure often referred to?
A. 5 plus 10%
B. 2 plus 15%
C. 2 plus 20%
D. 3 plus 25%
The typical hedge fund fee structure is 2% management fee plus 20% incentive fee, commonly referred to as "2 plus 20%."
44. What does the term 'hurdle rate' refer to in a hedge fund's incentive fee structure?
A. The minimum rate of return a hedge fund must achieve before charging an incentive fee
B. The maximum return a hedge fund can charge fees on
C. The percentage of the assets under management that is charged as management fees
D. The amount of capital required to start a hedge fund
The hurdle rate is the minimum return threshold a hedge fund must surpass before the incentive fee is triggered.
45. What is the purpose of the 'high-water mark' in a hedge fund's incentive fee structure?
A. To set a limit on the amount of fees that can be charged
B. To ensure that a manager is compensated even if the fund performs poorly
C. To calculate the performance relative to the previous highest asset value
D. To reward the hedge fund manager based on the initial investment
The high-water mark ensures that the hedge fund manager is only rewarded for performance above the previous peak in asset value.
46. What is meant by the term 'clawback' in the context of hedge funds?
A. The ability of investors to reclaim management fees
B. A provision that allows investors to recoup incentive fees if the hedge fund underperforms in subsequent years
C. The mechanism for recalculating returns to adjust for market volatility
D. The system that reduces the incentive fee if the fund’s returns are below a target threshold
Clawback allows investors to recover incentive fees if the hedge fund’s performance falls below previous levels, ensuring fairness for investors.
47. What is the purpose of a 'hurdle rate' in a hedge fund's incentive fee structure?
A. To ensure the hedge fund earns a minimum return before charging incentive fees
B. To set a cap on the incentive fees that can be charged
C. To calculate the percentage of management fees that apply each year
D. To determine the maximum loss allowed before an incentive fee is applied
The hurdle rate sets a minimum benchmark return (like the Treasury yield) that the hedge fund must exceed before applying incentive fees.
48. In the hedge fund example, what is the 'high-water mark' for year one?
A. $90 million
B. $100 million
C. $101.5 million
D. $103 million
The high-water mark for year one is $101.5 million, which includes the hurdle rate of 1.5% return over the initial $100 million investment.
49. What is the function of the 'clawback' clause in a hedge fund’s incentive fee structure?
A. To provide additional compensation to the hedge fund manager in case of losses
B. To allow investors to reclaim incentive fees in case of future losses
C. To prevent the hedge fund from charging fees during negative market conditions
D. To ensure the hedge fund manager is paid only based on profits above the hurdle rate
The clawback clause ensures that if the hedge fund performs poorly in the future, the investors can reclaim part of the incentive fees previously paid to the manager.
50. How does the high-water mark safeguard protect investors in a hedge fund?
A. By ensuring that hedge funds charge incentive fees on gains only above a fixed annual rate
B. By capping the amount of fees that can be charged each year
C. By allowing investors to redeem their shares at any time
D. By requiring the hedge fund to recoup previous losses before applying incentive fees again
The high-water mark ensures that incentive fees are only charged on returns that exceed the previous highest asset value, protecting investors from paying fees on recovered losses.
51. What is the primary focus of long/short equity hedge funds?
A. Buying undervalued stocks and short selling overvalued stocks
B. Investing exclusively in distressed debt bonds
C. Buying only long positions in emerging market assets
D. Focusing solely on market timing to predict future trends
Long/short equity funds focus on identifying mispriced stocks, buying undervalued stocks (long) and short selling overvalued stocks.
52. What is the primary risk faced by dedicated short hedge funds?
A. Overexposure to emerging markets
B. Poor performance in rising market conditions
C. Excessive reliance on arbitrage strategies
D. High liquidity risks due to complex financial instruments
Dedicated short hedge funds face the risk of poor performance when markets are rising, as they focus on shorting overvalued stocks.
53. What is a key characteristic of distressed debt hedge funds?
A. They focus on bonds with high credit ratings
B. They invest in bonds that are trading at deep discounts due to financial distress
C. They primarily invest in government securities
D. They aim to capitalize on short-term price movements in the market
Distressed debt hedge funds focus on buying bonds with low ratings (e.g., CCC) that trade at deep discounts, hoping to profit from a potential recovery.
54. What type of hedge fund strategy involves betting on the mispricing of convertible securities?
A. Merger arbitrage
B. Fixed income arbitrage
C. Convertible arbitrage
D. Long/short equity
Convertible arbitrage involves betting on the mispricing of convertible securities, typically by going long on the convertible bond and short on the underlying stock.
55. Which hedge fund strategy focuses on profiting from the price differences between related fixed-income securities?
A. Distressed debt
B. Fixed income arbitrage
C. Global macro
D. Dedicated short
Fixed income arbitrage strategies focus on exploiting price differences between related fixed-income securities, such as government and corporate bonds.
56. In a merger arbitrage strategy, what does a hedge fund typically do when an all-cash deal is announced?
A. Short sell shares of the acquiring company
B. Buy shares of the target company and wait for the acquisition price to be paid
C. Invest in the acquiring company’s stock and sell the target company’s stock
D. Buy shares of both companies and wait for the merger to fail
In an all-cash deal, a merger arbitrage fund buys shares of the target company (company B) and waits for the acquisition price to be paid, which is typically above the market price after the announcement.
57. What is the key assumption in a merger arbitrage strategy?
A. The merger will definitely fail
B. Insider information is used to predict merger outcomes
C. The strategy relies only on public information regarding the merger
D. The acquirer's stock will always outperform the target's stock
Merger arbitrage strategies are based on publicly available information about the merger, not insider information, with the goal of profiting from the price discrepancies between the target and acquirer companies.
58. In an all-stock merger deal, what is the typical action taken by a merger arbitrage fund?
A. Buy shares of the target company and short sell shares of the acquirer in a specific ratio
B. Buy both companies' stocks equally
C. Only buy shares of the acquirer’s stock
D. Short sell both companies' stocks
In an all-stock deal, a merger arbitrage fund buys shares of the target company (company B) and simultaneously shorts a specific proportion of shares in the acquirer company (company A), typically one-quarter of the number of shares of the target.
59. In convertible arbitrage, what is the primary strategy for hedge funds?
A. Short sell convertible bonds when the stock price is low
B. Buy convertible bonds if their market price is lower than their model price, anticipating price convergence
C. Purchase stocks and short convertible bonds simultaneously
D. Buy stocks and sell convertible bonds without considering market price
In convertible arbitrage, hedge funds purchase convertible bonds when their market price is below the model price, expecting the two prices to converge. This strategy profits from mispricings between the bond and stock.
60. What is the primary goal of fixed-income arbitrage hedge funds?
A. To buy undervalued stocks and sell overvalued bonds
B. To exploit price discrepancies between stocks and bonds in emerging markets
C. To profit from mispricing of bonds, often using leverage to enhance returns
D. To create and sell debt securities with inflated prices
Fixed-income arbitrage funds seek to profit by exploiting mispricings in the bond market. This typically involves taking long positions in undervalued bonds and short positions in overvalued bonds, often with leverage.
61. What risk must emerging market hedge funds consider when investing in sovereign debt?
A. Political risk and risk of default by the issuing country
B. Risk of currency exchange fluctuations only
C. Risk of only rising inflation rates in developed countries
D. Lack of liquidity in financial markets
When investing in sovereign debt, emerging market hedge funds need to be aware of the risk of default by the issuing country, as many developing countries have defaulted in the past. Additionally, political risks are important to consider.
62. What is the advantage of using American Depository Receipts (ADRs) in emerging market hedge fund strategies?
A. ADRs always offer higher returns than direct investment in foreign stocks
B. ADRs provide exposure to foreign assets while avoiding the complexities of foreign currency transactions
C. ADRs eliminate currency risks associated with foreign investments
D. ADRs only involve investments in large-cap foreign companies
ADRs offer a simpler way for hedge funds to gain exposure to foreign markets by providing U.S.-listed securities tied to foreign stocks. They also provide a more accessible way to manage currency exposure and investment risks.
63. What is the primary goal of global macro hedge funds?
A. To profit from small, short-term fluctuations in stock prices
B. To profit from macroeconomic trends and deviations from equilibrium in foreign exchange rates, interest rates, or inflation
C. To trade commodities based on past price patterns
D. To invest in stocks based on technical analysis
Global macro hedge funds focus on exploiting macroeconomic trends or deviations from equilibrium, such as changes in foreign exchange rates, interest rates, or inflation. They aim to profit by predicting how these trends will eventually correct themselves.
64. What is the key challenge faced by global macro hedge funds?
A. Predicting short-term price movements of individual stocks
B. Managing liquidity risks in emerging markets
C. Waiting for macroeconomic trends to correct themselves, which can take a long time
D. Ensuring consistent returns from small bets on equity markets
The primary challenge for global macro hedge funds is the time it takes for macroeconomic trends to correct themselves. These trends can take a long time to realign, and some funds may not be able to wait for the trend to return to equilibrium.
65. What is the main focus of managed futures hedge funds?
A. Predicting commodity price movements and making investment decisions based on those predictions
B. Making long-term investments in stock indices based on market forecasts
C. Investing exclusively in foreign exchange markets
D. Investing in real estate for capital appreciation
Managed futures hedge funds focus on predicting the future movements of commodity prices and making investment decisions based on those predictions. They often use backtesting to assess the validity of their strategies, although past success doesn't guarantee future results.
66. What is a key drawback of using backtesting in managed futures strategies?
A. It can lead to overexposure in the commodities market
B. Backtesting guarantees the success of the strategy in future market conditions
C. It does not account for changes in market regulations
D. It cannot distinguish between strategies that worked due to proper analysis versus those that worked due to luck
A significant drawback of backtesting in managed futures strategies is that it doesn't differentiate between strategies that succeeded due to proper analysis and those that worked by chance. This can lead to an overestimation of a strategy's potential.
67. What is a key characteristic of mutual fund performance compared to hedge fund performance?
A. Mutual fund performance is typically more volatile than hedge fund performance
B. Mutual fund performance is readily available and accurately reported by independent parties
C. Hedge fund performance is more transparent and regulated than mutual fund performance
D. Mutual fund performance is generally not influenced by management fees
Mutual fund performance is widely available and accurately reported by independent sources, unlike hedge fund performance, which can be harder to assess due to voluntary participation and self-reporting biases.
68. What is "backfill bias" in the context of hedge fund performance reporting?
A. The tendency for hedge funds to report only their worst performing years
B. A strategy used by hedge funds to hide poor performance in the past
C. The practice of adding a hedge fund’s previous returns to the database after the fund reports positive performance
D. The inclusion of funds that have not reported their performance yet
Backfill bias occurs when a hedge fund reports its performance to an index vendor, and the database then retroactively adds the fund's prior returns. This creates an issue with reliability, as these backfilled returns may not reflect the actual performance over time.
69. What does empirical research suggest about the performance of actively managed mutual funds?
A. Actively managed mutual funds consistently outperform the market, even after expenses
B. Actively managed mutual funds typically underperform the market once expenses are accounted for
C. Actively managed mutual funds have high persistence in outperforming the market
D. Actively managed mutual funds outperform index funds with lower fees consistently
Empirical research has suggested that actively managed mutual funds generally underperform the market after accounting for management fees and expenses. Even the funds that outperform in a given year typically do not continue this success in subsequent years.
70. Which of the following is a measurement bias commonly seen in hedge fund performance reporting?
A. Survivorship bias
B. Backfill bias
C. Look-ahead bias
D. Data-mining bias
Backfill bias is a common measurement issue in hedge fund performance reporting, where funds retroactively add performance data after reporting good results, distorting the actual performance history of the fund.
71. Which of the following is a significant distinction between mutual funds and hedge funds?
A. Both are managed by professionals.
B. Hedge funds usually restrict immediate withdrawal access.
C. Both charge fees for investment management.
D. Both offer diversified portfolios to investors.
Hedge funds are typically less liquid than mutual funds, often with restrictions on withdrawals, making this a key difference.
72. What would be the estimated return for a hedge fund with a 2% management fee and 20% incentive fee, where there's a 40% chance of earning a 50% return and a 60% chance of losing 40%?
A. 4.35%
B. 6.12%
C. 5.10%
D. 7.22%
The return is calculated by considering both the probabilities of different outcomes and accounting for both the management and incentive fees.
73. Which type of hedge fund primarily focuses on exploiting mispricing in global currency markets?
A. Equity arbitrage funds
B. Global macro funds
C. Trend-following funds
D. Event-driven funds
Global macro hedge funds often focus on identifying and exploiting imbalances or mispricings in currency and other macroeconomic markets.
74. Which of the following statements about hedge fund performance reporting is true?
A. All hedge fund results are automatically included in performance indexes.
B. Hedge funds have the option to decide whether their performance is included in performance indexes.
C. Hedge funds are required to report their past results for transparency.
Hedge funds can choose whether to report their performance in indexes, and if they do, past results are often backfilled, leading to potential reporting biases.
