Equity Hedge Fund ABS Models: Choosing the Volatility Factor

Presentation :

Many of the factors used in performing this analysis are straightforward and wellacceptedparticularly in the area of equity hedge funds, where a long market index factor, a small-minus-large factor, and a value-minus growth factor seem to be well-accepted components of an equity hedge fund ABS model. Little attention, however, has been given to understanding the most relevant volatility factors and the relative merits of various instruments in this context. The purpose of this paper is to explore the effectiveness of a variety of volatility factors and to identify those that seem to provide the best explanatory power and the best intuitions concerning the exposures of equity-related hedge fund managers.