Gamma Trading Skills in Hedge Funds

57 Pages Posted: 29 May 2018 Last revised: 5 Jun 2018

See all articles by Boris Fays

Boris Fays

University of Liège - HEC Management School

Georges Hübner

HEC Liège

Marie Lambert

University of Liège - HEC Liège

Date Written: May 16, 2018


This paper explores the gamma trading, timing and managerial skills of individual hedge funds across categories. We replicate the non-linear payoffs of hedge funds with traded options, with the option features being endogenously defined in our replication model. On top of providing a flexible tool to create individual benchmarks for the payoff curvature of hedge fund, the model helps assigning hedge fund styles into three categories: directional with market timing skills, non-directional and market timers. Overall, our empirical results show that, on 30% of replicated funds in our sample (10,958 funds), there is no evidence of the presence of selection skills once a fund performance is adjusted with respect to the option-based benchmark and the traditional option-based factors of Agarwal and Naik (2004). This research has an incremental potential to stimulate additional research in the field of hedge funds performance replication through passive strategies.

Keywords: derivatives, Hedge Funds, market timing, non linear payoffs

JEL Classification: G10, G12, G13

Suggested Citation

Fays, Boris and Hübner, Georges and Lambert, Marie, Gamma Trading Skills in Hedge Funds (May 16, 2018). Available at SSRN: or

Boris Fays (Contact Author)

University of Liège - HEC Management School ( email )


Georges Hübner

HEC Liège ( email )

Rue Louvrex 14, Bldg. N1
Liege, 4000
+32 42327428 (Phone)

Marie Lambert

University of Liège - HEC Liège ( email )

rue Louvrex 14
Liège, 4000

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