The Beta Neutral Model with Leverage Effect

27 Pages Posted: 28 Aug 2017

See all articles by Sébastien Valeyre

Sébastien Valeyre

John Locke Investments

Denis Grebenkov

CNRS; Ecole Polytechnique, PMC; PMC, CNRS - Ecole Polytechnique

Sofiane Aboura

Université Paris XIII Nord - Department of Economics and Management

Date Written: May 30, 2017

Abstract

We present a beta neutral model that includes the leverage effect to allow hedge fund managers to target a near-zero beta for market neutral strategies. For this purpose, we derive a metric of correlation with leverage effect to identify the fine relation between the market beta and volatility changes. An empirical test based on the most popular market neutral strategies is run from 2000 to 2015 with exhaustive data sets including 600 American stocks and 600 European stocks from the S&P 500, Nasdaq 100, and Euro Stoxx 600. Our findings confirm the ability of the beta neutral model to withdraw an important part of the bias from the market neutral strategies.

Keywords: Beta, Correlation, Volatility, Portfolio Management, Market Neutral Strategies

JEL Classification: C5, G01, G11, G12, G32

Suggested Citation

Valeyre, Sébastien and Grebenkov, Denis and Aboura, Sofiane, The Beta Neutral Model with Leverage Effect (May 30, 2017). Available at SSRN: https://ssrn.com/abstract=3026031 or http://dx.doi.org/10.2139/ssrn.3026031

Sébastien Valeyre (Contact Author)

John Locke Investments ( email )

38 Avenue Franklin Roosevelt
Fontainebleau-Avon, 77210
France

Denis Grebenkov

CNRS ( email )

3, rue Michel-Ange
Paris cedex 16, 75794
France
+33169334662 (Phone)
+33169334799 (Fax)

HOME PAGE: http://pmc.polytechnique.fr/pagesperso/dg/

Ecole Polytechnique, PMC ( email )

Route de Saclay
Palaiseau, 91128
France
+33169334662 (Phone)
+33169334799 (Fax)

HOME PAGE: http://pmc.polytechnique.fr/pagesperso/dg/

PMC, CNRS - Ecole Polytechnique ( email )

Route de Saclay
Palaiseau, 91128
France
+33169334662 (Phone)
+33169334799 (Fax)

HOME PAGE: http://pmc.polytechnique.fr/pagesperso/dg

Sofiane Aboura

Université Paris XIII Nord - Department of Economics and Management ( email )

99 avenue Jean-Baptiste
Clément, Villetaneuse 93430
France

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