Do hedge funds time market tail risk? Evidence from option-implied tail risk

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This paper focuses on an unexplored dimension of fund managers' timing ability: Market-wide tail risk implied by information in options markets. Constructing the option-implied tail risk, we investigate whether hedge fund managers can strategically time the tail risk through adjusting their exposure to changes of it. Using an extensive sample of equity-oriented hedge funds, we find strong evidence of tail risk timing ability of hedge fund managers. Furthermore, tail risk timing ability brings significant economic value to investors. Top-ranked funds outperform bottom-ranked funds by 5-7% annually after adjusting for risk factors. Our results are robust to various robustness checks.
Publisher
WILEY
Issue Date
2019-02
Language
English
Article Type
Article; Proceedings Paper
Citation

JOURNAL OF FUTURES MARKETS, v.39, no.2, pp.205 - 237

ISSN
0270-7314
DOI
10.1002/fut.21972
URI
http://hdl.handle.net/10203/250192
Appears in Collection
MT-Journal Papers(저널논문)
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