 The Use of Derivatives by Investment Managers and Implications for Portfolio Performance and Risk*Kingsley Fong, David Gallagher and Aaron Ng International Review of Finance, 2005, vol. 5, issue 1‐2, 1-29 Abstract: This study provides an empirical examination of derivative instruments used by institutional investors. Our analysis provides a unique insight into the role and benefits of derivative securities in active equity portfolio management. We contribute to the literature by using a database that comprises the periodic portfolio holdings and daily trades of institutional fund managers. The consequence of derivative use is analyzed using a number of performance and risk measures. Overall, we find the use of derivatives have a negligible impact on fund returns, and is primarily attributed to low levels of derivative exposure relative to total fund size. We also evaluate how derivatives are used by considering the trading strategies executed by active investment managers. Specifically, option trading patterns are consistent with the execution of momentum trading strategies. This study also documents that active investment managers prefer not to use options markets to engage in informed trading. Date: 2005 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:irvfin:v:5:y:2005:i:1-2:p:1-29 Ordering information: This journal article can be ordered from Access Statistics for this article International Review of Finance is currently edited by Bruce D. Grundy, Naifu Chen, Ming Huang, Takao Kobayashi and Sheridan Titman More articles in International Review of Finance from International Review of Finance Ltd. |
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