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Question 6 "Mutual funds operate mainly in stock and bond markets. Hedge funds operate in...

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Question 6 "Mutual funds operate mainly in stock and bond markets. Hedge funds operate in other markets. The fact that hedge funds generate larger alpha than mutual funds is because stock and bond markets are more efficient than the markets in which hedge funds operate." Critically discuss which of the elements of this statement are true or not. In light of what you know about (a) the differences between hedge funds and mutual funds (b) fund managers skill, what might explain the performance differences we observe between mutual funds and hedge funds? (40 marks)

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