Risk Management in Student-Managed Funds: Earnings Announcements and the Collar Strategy

24 Pages Posted: 25 Jul 2018

See all articles by J. Christopher Hughen

J. Christopher Hughen

University of Denver - Daniels College of Business

Pei Lung

University of Denver

Date Written: June 21, 2018

Abstract

Student-managed investment funds typically pursue “plain vanilla” objectives that satisfy risk-adverse university administrators. We demonstrate the value of adding option strategies to reduce the risk of equity positions around earnings announcements. Such trading strategies enhance the pedagogical value of these classes in several ways. First, students learn how to implement risk reduction strategies. Second, the proper implementation of these strategies requires students to learn the complex mechanisms associated with corporate earnings dissemination and analyst coverage. This also provides an opportunity to study earnings drift, which is a persistent and economically significant financial anomaly. We document how students have successfully utilized collar strategies to immunize risk in the fund at the University of Denver.

Keywords: student-managed investment funds, option hedging, collar strategies, earnings announcements

JEL Classification: G11, G12, G17

Suggested Citation

Hughen, John Christopher and Lung, Pei, Risk Management in Student-Managed Funds: Earnings Announcements and the Collar Strategy (June 21, 2018). Available at SSRN: https://ssrn.com/abstract=3200622 or http://dx.doi.org/10.2139/ssrn.3200622

John Christopher Hughen (Contact Author)

University of Denver - Daniels College of Business ( email )

2101 S. University Blvd
Denver, CO 80208-8951
United States
303-803-6171 (Phone)

HOME PAGE: http://www.hughen.com

Pei Lung

University of Denver ( email )

2101 S. University Blvd.
Denver, CO 80208-8921
United States

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