Hi all,
I came across this question and would like to discuss with you all.
Hedge fund XYZ has monthly returns that are extremely smooth. Which if the following of the smoohness of the reurn is false:
A. Increase calculated Sharpse ratio
B. lower the volatility and market beta
C. introduce negative serial correlation
D. It is typical of investments in illiquid assets
Since I knew that A,B, D are all correct, I chose D. However I did not understand why a smoothness of return may introduce negative serial correlation.
I really appreciate any help from you all.
I came across this question and would like to discuss with you all.
Hedge fund XYZ has monthly returns that are extremely smooth. Which if the following of the smoohness of the reurn is false:
A. Increase calculated Sharpse ratio
B. lower the volatility and market beta
C. introduce negative serial correlation
D. It is typical of investments in illiquid assets
Since I knew that A,B, D are all correct, I chose D. However I did not understand why a smoothness of return may introduce negative serial correlation.
I really appreciate any help from you all.