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Timing the volatility risk of beta anomaly: Evidence from hedge fund strategies

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posted on 2022-05-24, 13:57 authored by Tianyi Ma, Kai-Hong TeeKai-Hong Tee, Baibing LiBaibing Li
Hedge funds are known to engage in the betting-against-beta (BAB) strategy arising from beta-anomaly-related market mispricing. This paper examines if equity-oriented hedge funds time the volatility risk when executing the BAB strategy. We apply realised and downside volatility risk measures to assess the BAB strategy. We show that for top volatility risk timers, older funds tend to be better risk timers, while among the bottom volatility risk timers, younger and larger-sized funds stand out as stronger timers of BAB volatility. We observe that the Long/Short Equity funds show evidence as the strongest volatility risk timers of BAB strategy when the market condition turned bad. This is supported by their other effective timing strategies at the same time, including timing the market sentiment. Our findings provide important references for private investors when selecting hedge funds as risk management is crucial to the success/failure of any investments.

History

School

  • Business and Economics

Department

  • Business

Published in

International Review of Financial Analysis

Volume

81

Publisher

Elsevier

Version

  • VoR (Version of Record)

Rights holder

© The Authors

Publisher statement

This is an Open Access Article. It is published by Elsevier under the Creative Commons Attribution -NonCommercial-NoDerivatives 4.0 International Licence (CC BY-NC-ND). Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/

Acceptance date

2022-02-11

Publication date

2022-02-14

Copyright date

2022

ISSN

1057-5219

Language

  • en

Depositor

Dr Kai-Hong Tee. Deposit date: 27 February 2022

Article number

102095

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