Gamma Trading Skills in Hedge Funds

This paper explores the gamma trading, timing and managerial skills of individual hedge funds across categories. We replicate the non-linear payoffs of hedge funds with traded options, with the opt ...

Auteur(s) :

Boris Fays

PhD candidate, HEC Liège

Georges Hübner, PhD

Professor of Finance, HEC Liège
Associate Professor, Maastricht University

Marie Lambert

Associate Professor of Finance, HEC Liège
Research Associate, EDHEC-Risk Institute

This paper explores the gamma trading, timing and managerial skills of individual hedge funds across categories. We replicate the non-linear payoffs of hedge funds with traded options, with the option features being endogenously defined in our replication model. On top of providing a flexible tool to create individual benchmarks for the payoff curvature of hedge fund, the model helps assigning hedge fund styles into three categories: directional with market timing skills, non-directional and market timers. Overall, our empirical results show that, on 30% of replicated funds in our sample (10,958 funds), there is no evidence of the presence of selection skills once fund performance is adjusted with respect to the option-based benchmark and the traditional option-based factors of Agarwal and Naik (2004). This research has an incremental potential to stimulate additional research in the field of hedge funds performance replication through passive strategies.

Pdf
Gamma Trading Skills in Hedge Funds...
(-1.00 B)
Type : Working paper
Date : le 02/05/2018
Pôle de recherche Finance

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