β in the tails

Do hedge funds hedge? In negative states of the world, often not as much as they should. For several styles, we report larger market betas when market returns are low (i.e., “beta in the tails”). We justify this finding through a combination of negative-mean jumps in the market returns and large mar...

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Veröffentlicht in:	Journal of econometrics 2022-03, Vol.227 (1), p.134-150
Hauptverfasser:	Bandi, Federico M., Renò, Roberto
Format:	Artikel
Sprache:	eng
Schlagworte:	Beta Diffusive risk Econometrics Hedge funds Jump risk Mathematical models Risk assessment
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description	Do hedge funds hedge? In negative states of the world, often not as much as they should. For several styles, we report larger market betas when market returns are low (i.e., “beta in the tails”). We justify this finding through a combination of negative-mean jumps in the market returns and large market jump betas: when moving to the left tail of the market return distribution jump dynamics dominate continuous dynamics and the overall systematic risk of the fund is driven by the higher systematic risk associated with return discontinuities. Methodologically, the separation of continuous and discontinuous dynamics is conducted by exploiting the informational content of the high-order infinitesimal cross-moments of hedge-fund and market returns.
doi_str_mv	10.1016/j.jeconom.2020.06.006
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subjects	Beta Diffusive risk Econometrics Hedge funds Jump risk Mathematical models Risk assessment
title	β in the tails
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