Volatility of aggregate volatility and hedge fund returns

Vikas Agarwal, Yakup Arisoy () and Narayan Y. Naik

Journal of Financial Economics, 2017, vol. 125, issue 3, 491-510

Abstract: This paper investigates empirically whether uncertainty about equity market volatility can explain hedge fund performance both in the cross section and over time. We measure uncertainty via volatility of aggregate volatility (VOV) and construct an investable version through returns on lookback straddles on the Chicago Board Options Exchange (CBOE) volatility index, VIX. We find that VOV exposure is a significant determinant of hedge fund returns. After controlling for fund characteristics, we find a robust and significant negative risk premium for VOV exposure in the cross section of hedge fund returns. We corroborate our results using statistical and parameterized proxies of VOV over a longer sample period.

Keywords: Uncertainty; Volatility of volatility; Hedge funds; Performance; Risk (search for similar items in EconPapers)
JEL-codes: C13 G11 G23 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (40)

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Related works:
Working Paper: Volatility of Aggregate Volatility and Hedge Fund Returns (2017)
Working Paper: Volatility of Aggregate Volatility and Hedge Fund Returns (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:125:y:2017:i:3:p:491-510

DOI: 10.1016/j.jfineco.2017.06.015

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