 Are "market neutral" hedge funds really market neutral?LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library Abstract: One can consider the concept of market neutrality for hedge funds as having breadth and depth: breadth reflects the number of market risks to which a fund is neutral, while depth reflects the completeness of the neutrality of the fund to market risks. We focus on market neutrality depth, and propose five different neutrality concepts. Mean neutrality nests the standard correlation-based definition of neutrality. Variance neutrality, Value-at-Risk neutrality and tail neutrality all relate to the neutrality of the risk of the hedge fund to market risks. Finally, complete neutrality. corresponds to independence of the fund to market risks. We suggest statistical tests for each neutrality concept, and apply the tests to a combined database of monthly market neutral hedge fund returns from the HFR and TASS hedge fund databases. We find that around one-quarter of these funds exhibit some significant exposure to market risk. Keywords: Diversification; Alternative investments; Correlation; Portfolio decisions (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:24819 Access Statistics for this paper More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC. |
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