Hedge fund returns and uncertainty

Research output: Contribution to journalArticle

Abstract

The concept of uncertainty in investment returns, as an additional consideration to the traditional mean-variance framework, is receiving increased attention in the finance literature. This article examines the financial market relationship between uncertainty and hedge fund returns, finding that a readily available proxy for uncertainty (the CBOE® VVIX index) is a useful indicator of next-month hedge fund returns. Hedge funds in the highest quintile of VVIX index sensitivity outperform those in the lowest quintile of uncertainty by 5.97% annually, on average. The results of the study indicate that the use of this parsimonious measure of uncertainty compares favorably to more complex measures of uncertainty that have previously been analyzed.

Original languageEnglish (US)
JournalNorth American Journal of Economics and Finance
DOIs
StateAccepted/In press - Jan 1 2018

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Hedge funds
Uncertainty
Finance
Mean-variance
Financial markets

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Cite this

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title = "Hedge fund returns and uncertainty",
abstract = "The concept of uncertainty in investment returns, as an additional consideration to the traditional mean-variance framework, is receiving increased attention in the finance literature. This article examines the financial market relationship between uncertainty and hedge fund returns, finding that a readily available proxy for uncertainty (the CBOE{\circledR} VVIX index) is a useful indicator of next-month hedge fund returns. Hedge funds in the highest quintile of VVIX index sensitivity outperform those in the lowest quintile of uncertainty by 5.97{\%} annually, on average. The results of the study indicate that the use of this parsimonious measure of uncertainty compares favorably to more complex measures of uncertainty that have previously been analyzed.",
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Hedge fund returns and uncertainty. / Krause, Timothy Alan.

In: North American Journal of Economics and Finance, 01.01.2018.

Research output: Contribution to journalArticle

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