Bear Factor and Hedge Fund Performance

Ho, Thang and Kagkadis, Anastasios and Wang, George (2019) Bear Factor and Hedge Fund Performance. Working Paper. UNSPECIFIED. (Unpublished)

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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.

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Monograph (Working Paper)
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08 Nov 2019 11:55
Last Modified:
12 Sep 2023 04:25