Long/Short Equity Hedge Funds and Systematic Ambiguity

40 Pages Posted: 8 Feb 2014

See all articles by Rajna Gibson

Rajna Gibson

European Corporate Governance Institute (ECGI); University of Geneva - Geneva Finance Research Institute (GFRI)

Nikolay Ryabkov

affiliation not provided to SSRN

Date Written: January 9, 2014

Abstract

This study presents a hedge fund portfolio choice model for an investor facing ambiguity. In the empirical section, we measure ambiguity as the cross-sectional dispersion in Industrial Production growth and in stock market return forecasts, and we construct the systematic ambiguity factors from the universe of S&P 500 stocks. We estimate ambiguity betas for long/short equity hedge funds strategies and document signi cant ambiguity exposures for directional L/S equity hedge funds. We compare the out-of-sample performance of portfolios constructed according to the L/S hedge fund alphas' ranking with and without systematic ambiguity exposures and nd that the former outperform.

Keywords: Ambiguity, Asset Allocation, Long/Short Equity Hedge Funds, Performance Measurement

JEL Classification: G11

Suggested Citation

Gibson, Rajna and Ryabkov, Nikolay, Long/Short Equity Hedge Funds and Systematic Ambiguity (January 9, 2014). Swiss Finance Institute Research Paper No. 14-05, Available at SSRN: https://ssrn.com/abstract=2392461 or http://dx.doi.org/10.2139/ssrn.2392461

Rajna Gibson (Contact Author)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland
+41.22.379.89.83 (Phone)

Nikolay Ryabkov

affiliation not provided to SSRN

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