Bear market risk and and the cross-section of hedge fund returns

Ho, Thang and Kagkadis, Anastasios and Wang, George (2019) Bear market risk and and the cross-section of hedge fund returns. Working Paper. UNSPECIFIED. (Unpublished)

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Abstract

We propose the bear beta, i.e. the sensitivity of hedge funds to a bear spread portfolio orthogonalized to the market, as a novel way of classifying funds as insurance buyers or sellers. We find that low bear beta funds (insurance sellers) outperform high bear beta funds (insurance buyers) by 0.58% per month on average. The negative relation between bear beta and future hedge fund returns is not subsumed by a large set of fund characteristics and risk exposures. Consistent with a risk-based explanation, this relation remains negative during market crashes but turns positive during periods of increasing bear market concerns.

Item Type:
Monograph (Working Paper)
Subjects:
ID Code:
138796
Deposited By:
Deposited On:
08 Nov 2019 11:55
Refereed?:
No
Published?:
Unpublished
Last Modified:
24 Nov 2020 10:11