Limits to Arbitrage: Time-Varying Market Neutrality of Hedge Funds

2009 ◽  
Author(s):  
Arjen Siegmann ◽  
Denitsa Stefanova
Keyword(s):  
Hedge Funds ◽  
Time Varying ◽  
Limits To Arbitrage

scholarly journals HEDGE FUNDS: RISK AND PERFORMANCE

2018 ◽  
Vol 06 (01) ◽  
pp. 1850003
Author(s):  
SANGHEON SHIN ◽  
JAN SMOLARSKI ◽  
GÖKÇE SOYDEMIR
Keyword(s):  
Risk Factors ◽  
Hedge Funds ◽  
Factor Model ◽  
Explanatory Power ◽  
Hedge Fund ◽  
Investment Strategy ◽  
Time Varying ◽  
Asset Class ◽  
And Performance ◽  
Fund Portfolio

This paper models hedge fund exposure to risk factors and examines time-varying performance of hedge funds. From existing models such as asset-based style (ABS)-factor model, standard asset class (SAC)-factor model, and four-factor model, we extract the best six factors for each hedge fund portfolio by investment strategy. Then, we find combinations of risk factors that explain most of the variance in performance of each hedge fund portfolio based on investment strategy. The results show instability of coefficients in the performance attribution regression. Incorporating a time-varying factor exposure feature would be the best way to measure hedge fund performance. Furthermore, the optimal models with fewer factors exhibit greater explanatory power than existing models. Using rolling regressions, our customized investment strategy model shows how hedge funds are sensitive to risk factors according to market conditions.

The Distress Anomaly is Deeper than you Think: Evidence from Stocks and Bonds

2021 ◽  
Author(s):  
Doron Avramov ◽  
Tarun Chordia ◽  
Gergana Jostova ◽  
Alexander Philipov
Keyword(s):  
Credit Risk ◽  
Financial Distress ◽  
Corporate Bonds ◽  
Time Varying ◽  
External Financing ◽  
Earnings Expectations ◽  
Limits To Arbitrage

Abstract The distress anomaly reflects the abnormally low returns of high credit risk stocks during financial distress. Evidence from stocks and corporate bonds reinforces the anomaly and challenges rationales based on shareholders’ ability to extract value from bondholders, time-varying betas, lottery-type preferences, biased earnings expectations, and limits-to-arbitrage. Moreover, mispricing of distressed stocks and bonds is associated with excess investment and excess external financing. Potential real distortions are materially understated when assessed based only on equity mispricing. We emphasize the important role of corporate bonds in dissecting the distress anomaly, and show that the anomaly is an unresolved puzzle.

scholarly journals Hedge Funds, Arbitrage, and Timing

2020 ◽  
Vol 13 (1) ◽  
pp. 45
Author(s):  
Daniel T. Lawson ◽  
Robert L. Schwartz ◽  
Seth D. Thomas
Keyword(s):  
Hedge Funds ◽  
Small Firms ◽  
Hedge Fund ◽  
Time Varying ◽  
Risk Premiums ◽  
Growth Anomaly ◽  
Asset Pricing Anomalies ◽  
Pricing Anomalies ◽  
Asset Growth ◽  
Abnormal Profits

This paper is an extension of the work of Lawson and Schwartz (2018) which analyzes the risk-adjusted performance of hedge funds by employing a collection of four, five, seven, and eight-factor models. The purpose is to evaluate how well the top and bottom performing subset of hedge fund strategies have profited on known asset pricing anomalies during two unique time periods, 1994 to 2000 and 2001 to 2008. The bifurcation of the data into two distinct periods allows for a deeper exploration of the potential time-varying significance of estimated factor arbitrage. Our empirical testing suggests that both the top and bottom performing funds did utilize the asset growth anomaly to generate abnormal profits. Top performers tended to invest with a long emphasis on low asset growth, value firms while the bottom-five performing hedge fund strategies tested positive for a predilection towards going long small firms with low asset growth characteristics. Arguably, these outcomes probably align with the nature of the investment philosophy of each fund strategy. Interestingly, however, the time-varying significance of estimated coefficients for the value and returns momentum factors between the two distinct timeframes suggests either intentional or unintentional rotation between the use of available pricing anomalies and risk premiums.

Beta Active Hedge Fund Management

2018 ◽  
Vol 53 (6) ◽  
pp. 2525-2558 ◽  
Author(s):  
Jun Duanmu ◽  
Alexey Malakhov ◽  
William R. McCumber
Keyword(s):  
Hedge Funds ◽  
Common Factor ◽  
Explanatory Power ◽  
Hedge Fund ◽  
Superior Performance ◽  
Time Varying ◽  
Fund Managers ◽  
Out Of Sample ◽  
Hedge Fund Performance

We reconsider whether hedge funds’ time-varying risk factor exposures are predictive of superior performance. We construct an overall measure (BA) of fund managers and present evidence that top beta active managers deliver superior long-term out-of-sample performance compared to top alpha active managers. BA captures the time-varying nature of beta exposures and can be interpreted as a common factor of both systematic risk (SR) and (1 - R2) measures. BA also compares favorably to extant measures of market timing, capturing the explanatory power of such measures of hedge fund performance.

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