Brexit: Cyclical dependence in market neutral hedge funds

Julio A. Crego () and Julio Gálvez ()
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Julio A. Crego: Tilburg University
Julio Gálvez: Banco de España

No 2141, Working Papers from Banco de España

Abstract: We examine linear correlation and tail dependence between market neutral hedge funds and the market portfolio conditional on the financial cycle. We document that the low correlation between these funds and the S&P 500 consists of a negative correlation during bear periods and a positive one during bull periods. In contrast, the remaining styles present a positive correlation across cycles. We also find that these funds present tail dependence only during bull periods. We study their implications for market timing and risk management.

Keywords: hedge funds; market neutrality; market timing; tail dependence; risk management (search for similar items in EconPapers)
JEL-codes: G11 G23 (search for similar items in EconPapers)
Pages: 93 pages
Date: 2021-11
New Economics Papers: this item is included in nep-cwa, nep-fmk and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2141

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