Do Investors Gain by Selling the Tails of Return Distributions?
Mathematical Finance 2024
56 Pages Posted: 8 Jul 2021 Last revised: 17 Oct 2024
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: 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
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