Are Chinese market-neutral strategy hedge funds really market neutral?

Xucheng Huang and Jie Sun

China Finance Review International, 2017, vol. 8, issue 1, 21-42

Abstract: Purpose - The purpose of this paper is to empirically analyze the “market-neutral” characteristics of the market-neutral strategy hedge funds in Chinese A-share market. Design/methodology/approach - The analyses in the paper are conducted to study the market-neutral characteristics by means of index analysis, correlation analysis,β-neutral analysis and the three-factor model analysis. Findings - The results show that the performance advantage of the market-neutral strategy hedge funds is obvious. Most market-neutral strategy funds are exposed to market risks and theαstrategy funds also have obvious style factor exposure; strictly speaking, all of the market-neutral strategies have not reached the “market-neutral” requirements. This paper also finds that Chinese trading restrictions on stock index futures in September 2015 have a significant impact on Chinese market-neutral strategy hedge funds. Originality/value - The conclusion of this paper has a certain reference value for understanding the risk characteristics and possible problems of hedge funds in emerging markets, and also has important reference value for investors.

Keywords: Hedge fund; α strategy; Arbitrage strategy; Market-neutral strategy (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:cfripp:cfri-04-2017-0033

DOI: 10.1108/CFRI-04-2017-0033

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