Long/Short Equity Hedge Funds and Systematic Ambiguity

Rajna Gibson Brandon and Nikolay Ryabkov
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Rajna Gibson Brandon: University of Geneva and Swiss Finance Institute
Nikolay Ryabkov: University of Zurich and Swiss Finance Institute

No 14-05, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: This study presents a hedge fund portfolio choice model for an investor facing ambiguity. In the empirical section, we measure ambiguity as the cross-sectional dispersion in Industrial Production growth and in stock market return forecasts, and we construct the systematic ambiguity factors from the universe of S&P 500 stocks. We estimate ambiguity betas for long/short equity hedge funds strategies and document signi cant ambiguity exposures for directional L/S equity hedge funds. We compare the out-of-sample performance of portfolios constructed according to the L/S hedge fund alphas' ranking with and without systematic ambiguity exposures and nd that the former outperform.

Keywords: Ambiguity; Asset Allocation; Long/Short Equity Hedge Funds; Performance Measurement (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2014-01
New Economics Papers: this item is included in nep-rmg and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1405

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