Guidelines for Constructing Factors Using Futures and Options Data From Thomson Reuters Datastream
38 Pages Posted: 16 Feb 2022 Last revised: 18 Feb 2022
Date Written: February 11, 2022
We provide detailed guidelines for constructing hedge fund factors based on strategies that trade futures and options, as proposed by Fung and Hsieh (2001), Agarwal and Naik (2004) and Moskowitz, Ooi and Pedersen (2012). While the original versions of these strategies require data from a wide variety of data providers, our versions use data only from the widely available Thomson Reuters Datastream (TDS) database. Our guidelines include recommendations for extracting, cleaning, merging, and processing the data appropriately including various subtle details involved in operationalizing the strategies. We replicate standard factors with good accuracy and propose several refinements to standard factors which should make them even more widely used. Our refined factors are made available online, notably including for the first time, daily observations of options and futures factors.
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