Do investors gain by selling the tails of return distributions?

Gurdip Bakshi, John Crosby and Xiaohui Gao

Mathematical Finance, 2025, vol. 35, issue 2, 297-336

Abstract: This paper examines whether investors gain by selling the tails of return distributions. To address this, we develop a way of ranking and scoring actively managed funds and investment strategies, which accounts for ambiguity aversion and risk aversion in decision‐making. Using data relating to options on the S&P 500 equity index and Treasury bond futures and to hedge funds, we provide evidence that suggests a negative answer to this question. We reinforce this evidence with data from options on the STOXX 50, FTSE, and Nikkei equity indices.

Date: 2025
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https://doi.org/10.1111/mafi.12447

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Persistent link: https://EconPapers.repec.org/RePEc:bla:mathfi:v:35:y:2025:i:2:p:297-336

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