Submitted manuscript, 11.3 MB, PDF document
Research output: Working paper
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TY - UNPB
T1 - Bear Factor and Hedge Fund Performance
AU - Ho, Thang
AU - Kagkadis, Anastasios
AU - Wang, George
PY - 2019/10/31
Y1 - 2019/10/31
N2 - We show that a simple and intuitive variable, the return of a bear spread portfolio orthogonalized with respect to the market (H-Bear factor), can serve as a new benchmark for explaining the cross-section of hedge fund returns. Low H-Bear exposure funds (bear risk insurance sellers) outperform high H-Bear exposure funds (bear risk insurance buyers) by 0.58% per month on average, outperform even during market crashes, but underperform when bear market risk materializes. Overall, we identify a new risk dimension that affects hedge fund performance, and we show that this risk factor is distinct from the already popular realized tail risk.
AB - We show that a simple and intuitive variable, the return of a bear spread portfolio orthogonalized with respect to the market (H-Bear factor), can serve as a new benchmark for explaining the cross-section of hedge fund returns. Low H-Bear exposure funds (bear risk insurance sellers) outperform high H-Bear exposure funds (bear risk insurance buyers) by 0.58% per month on average, outperform even during market crashes, but underperform when bear market risk materializes. Overall, we identify a new risk dimension that affects hedge fund performance, and we show that this risk factor is distinct from the already popular realized tail risk.
M3 - Working paper
BT - Bear Factor and Hedge Fund Performance
ER -