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Long/Short Equity Hedge Funds and Systematic Ambiguity

Author

Listed:
  • Rajna Gibson BRANDON

    (University of Geneva and Swiss Finance Institute)

  • Nikolay RYABKOV

    (University of Zurich and Swiss Finance Institute)

Abstract

This study presents a hedge fund portfolio choice model for an investor facing ambiguity. In the empirical section, we measure ambiguity as the cross-sectional dispersion in Industrial Production growth and in stock market return forecasts, and we construct the systematic ambiguity factors from the universe of S&P 500 stocks. We estimate ambiguity betas for long/short equity hedge funds strategies and document signi cant ambiguity exposures for directional L/S equity hedge funds. We compare the out-of-sample performance of portfolios constructed according to the L/S hedge fund alphas' ranking with and without systematic ambiguity exposures and nd that the former outperform.

Suggested Citation

  • Rajna Gibson BRANDON & Nikolay RYABKOV, 2014. "Long/Short Equity Hedge Funds and Systematic Ambiguity," Swiss Finance Institute Research Paper Series 14-05, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1405
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    File URL: http://ssrn.com/abstract=2392461
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    More about this item

    Keywords

    Ambiguity; Asset Allocation; Long/Short Equity Hedge Funds; Performance Measurement;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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