Short-Put Exposures in Hedge Fund Returns: Are They Really There?

28 Pages Posted: 16 Feb 2009

See all articles by Andre Lucas

Andre Lucas

Vrije Universiteit Amsterdam - School of Business and Economics; Tinbergen Institute

Arjen Siegmann

VU University Amsterdam

Marno Verbeek

Erasmus University - Rotterdam School of Management; Erasmus Research Institute of Management (ERIM); Netspar

Date Written: February 13, 2009

Abstract

Previous studies have shown that systematic risk in hedge fund returns is partly captured by short positions in put option returns. This is suggestive of a potential 'peso problem' in hedge fund returns: a series of steady returns may alternate with an occasional crash. In this paper, we analyze whether equity option-exposures are actually there, and find they are not. Although some hedge fund indices show some exposure to put or call-returns, several robustness analysis as well as an analysis of individual hedge fund returns show that exposures are not consistent with fundamental characteristics of options, such as put-call parity and the positive relation between option prices and volatility.

Keywords: hedge funds, nonlinear systematic risk factors, option factors, stability

JEL Classification: G12, G23

Suggested Citation

Lucas, Andre and Siegmann, Arjen and Verbeek, Marno, Short-Put Exposures in Hedge Fund Returns: Are They Really There? (February 13, 2009). Available at SSRN: https://ssrn.com/abstract=1342492 or http://dx.doi.org/10.2139/ssrn.1342492

Andre Lucas

Vrije Universiteit Amsterdam - School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands
+31 20 598 6039 (Phone)
+31 20 598 6020 (Fax)

HOME PAGE: http://personal.vu.nl/a.lucas

Tinbergen Institute

Roetersstraat 31
Amsterdam, 1018 WB
Netherlands

HOME PAGE: http://www.tinbergen.nl

Arjen Siegmann (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Dept. of Finance
Amsterdam, NOT IN US OR CANADA 1081 HV
Netherlands
+31205986581 (Phone)

HOME PAGE: http://personal.vu.nl/a.h.siegmann

Marno Verbeek

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands
+31 10 408 2790 (Phone)

HOME PAGE: http://www.rsm.nl/mverbeek

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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