Hedge fund transparency: quantifying valuation bias for illiquid assets

Risk measures, such as the Sharpe ratio, used by investment professionals are only as good as the accuracy of the asset price data used to derive them. Nowhere is this issue more relevant than for hedge funds, which often invest in less liquid assets such as convertible bonds. Here, Eric Weinstein and Adil Abdulali devise a ‘phantom price’ framework for illiquid assets and show how to generalise the Sharpe ratio to incorporate liquidity risk

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