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Brexit: Cyclical dependence in market neutral hedge funds

Author

Listed:
  • Julio A. Crego

    (Tilburg University)

  • Julio Gálvez

    (Banco de España)

Abstract

We examine linear correlation and tail dependence between market neutral hedge funds and the market portfolio conditional on the financial cycle. We document that the low correlation between these funds and the S&P 500 consists of a negative correlation during bear periods and a positive one during bull periods. In contrast, the remaining styles present a positive correlation across cycles. We also find that these funds present tail dependence only during bull periods. We study their implications for market timing and risk management.

Suggested Citation

  • Julio A. Crego & Julio Gálvez, 2021. "Brexit: Cyclical dependence in market neutral hedge funds," Working Papers 2141, Banco de España.
    • Handle: RePEc:bde:wpaper:2141
    as

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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    hedge funds; market neutrality; market timing; tail dependence; risk management;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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    This paper has been announced in the following NEP Reports:

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