Concave Payoff Patterns in Equity Fund Holdings and Transactions
29 Pages Posted: 14 Mar 2006
Date Written: September 11, 2006
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: Suggested Citation