Hedge fund returns and uncertainty

Timothy A. Krause

The North American Journal of Economics and Finance, 2019, vol. 47, issue C, 597-601

Abstract: The concept of uncertainty in investment returns, as an additional consideration to the traditional mean-variance framework, is receiving increased attention in the finance literature. This article examines the financial market relationship between uncertainty and hedge fund returns, finding that a readily available proxy for uncertainty (the CBOE® VVIX index) is a useful indicator of next-month hedge fund returns. Hedge funds in the highest quintile of VVIX index sensitivity outperform those in the lowest quintile of uncertainty by 5.97% annually, on average. The results of the study indicate that the use of this parsimonious measure of uncertainty compares favorably to more complex measures of uncertainty that have previously been analyzed.

Keywords: VIX; VVIX; Hedge funds; Risk; Uncertainty; Volatility (search for similar items in EconPapers)
JEL-codes: C1 C5 G1 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:47:y:2019:i:c:p:597-601

DOI: 10.1016/j.najef.2018.06.011

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