Concave Payoff Patterns in Equity Fund Holdings and Transactions

29 Pages Posted: 14 Mar 2006

See all articles by Stephen J. Brown

Stephen J. Brown

New York University - Stern School of Business

Peter L. Swan

University of New South Wales (UNSW Sydney; Financial Research Network (FIRN)

David R. Gallagher

Rozetta Institute

Onno W. Steenbeek

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); APG All Pensions Group

Date Written: September 11, 2006

Abstract

Recent results from the hedge fund literature provide evidence that option-based risk factors may be a significant factor in managed fund returns. By examining a unique database of high-frequency holdings and transactions from a representative sample of forty Australian equity funds we find that exposure to these option-based risk factors may well arise from trading activity rather than from derivative positions that generate similar payouts. While the resulting concave payout patterns are associated with large and significant alphas in our sample, these alphas may be more a compensation for a modest increase in tail risk exposure than they are a reward for information-based trading.

Keywords: Performance measurement, market timing measures, disposition effect, overlay strategies

JEL Classification: G23

Suggested Citation

Brown, Stephen J. and Swan, Peter Lawrence and Gallagher, David R. and Steenbeek, Onno W., Concave Payoff Patterns in Equity Fund Holdings and Transactions (September 11, 2006). Available at SSRN: https://ssrn.com/abstract=890611 or http://dx.doi.org/10.2139/ssrn.890611

Stephen J. Brown (Contact Author)

New York University - Stern School of Business ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0306 (Phone)
212-995-4233 (Fax)

Peter Lawrence Swan

University of New South Wales (UNSW Sydney ( email )

School of Banking and Finance
UNSW Business School
Sydney NSW, NSW 2052
Australia
+61 2 9385 5871 (Phone)
+61 2 9385 6347 (Fax)

HOME PAGE: http://https://www.business.unsw.edu.au/our-people/peterswan

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

David R. Gallagher

Rozetta Institute ( email )

Sydney

Onno W. Steenbeek

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

Dept. of Finance, H14-1
P.O. Box 1738
3000 DR Rotterdam, 3000DR
Netherlands
+31-10-4081400 (Phone)
+31-10-4089165 (Fax)

HOME PAGE: http://people.few.eur.nl/steenbeek/

APG All Pensions Group ( email )

Gustav Mahlerplein 3
P.O. Box 75283
1070 AG Amsterdam
Netherlands
+31-20-6049122 (Phone)
+31-20-4059176 (Fax)

HOME PAGE: http://www.apg.nl

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