The Behavior of Hedge Funds and the Theory of the Business Cycles

Abstract

The paper aims to find whether there is a typical theoretical behavior of hedge funds with specific strategies in the different phases of the business cycle. There are only few papers which have analyzed the empirical behavior of hedge fund during the different phases of the business cycles. The method used in this paper is the construction of an ideal type which is based on the famous concept of Max Weber. The ideal type is composed of individual phenomena, some of which are diffuse and discrete and others of which do not even exist in reality. Viewpoints are accentuated one-sidedly and synthesized into a unified analytical construct. However, the conceptually pure ideal type cannot be found (exactly) anywhere in reality. The reason for a theoretical examination is that the empirical studies just show that there is a relationship between the variables, but do not have an explanatory character. The assumption is that, for many hedge funds strategies, an ideal type behavior of hedge funds exists for the different phases of the business cycles so that the behavior has definitely a cyclical aspect.