Do Investors Gain by Selling the Tails of Return Distributions?

 Mathematical Finance 2024


56 Pages Posted: 8 Jul 2021 Last revised: 17 Oct 2024

See all articles by Gurdip Bakshi

Gurdip Bakshi

Temple University-Fox School of Business

John Crosby

University of Maryland - Robert H. Smith School of Business

Xiaohui Gao

Temple University-Fox School of Business

Date Written: June 27, 2017

Abstract

This paper examines whether investors gain by selling the tails of return distributions. To address this, we develop a way of ranking and scoring actively managed funds and investment strategies, which accounts for ambiguity aversion and risk aversion in decision-making. Using data relating to options on the S&P 500 equity index and Treasury bond futures and to hedge funds, we provide evidence that suggests a negative answer to this question. We reinforce this evidence with data from options on the STOXX 50, FTSE, and Nikkei equity indices.

Keywords: Blowups, ambiguity aversion, performance measure, selling return tails

JEL Classification: G12, G13, G14, G24, G32

Suggested Citation

Bakshi, Gurdip S. and Crosby, John and Gao, Xiaohui, Do Investors Gain by Selling the Tails of Return Distributions? (June 27, 2017).  Mathematical Finance 2024

, Available at SSRN: https://ssrn.com/abstract=3874848 or http://dx.doi.org/10.2139/ssrn.3874848

Gurdip S. Bakshi

Temple University-Fox School of Business ( email )

PA 19122
United States

John Crosby

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States
+447979901892 (Phone)

HOME PAGE: http://www.john-crosby.co.uk/

Xiaohui Gao (Contact Author)

Temple University-Fox School of Business ( email )

PA 19122
United States

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