Stock and option markets can at times reflect differing information. We identify three reasons for the presence of these periods of 'disagreement' between the cash and derivatives markets: 1) high volatility and noise trading; 2) high level of risk aversion; 3) speculation versus hedging trades....

This paper explores the gamma trading, timing and managerial skills of individual hedge funds across categories. We replicate the non-linear payoffs of hedge funds with traded options, with the option features being endogenously defined in our replication model. On top of providing a flexible...

Hedge funds shift investment strategies in response to changing market conditions. We adjust hedge fund returns for their risks in an estimation that accounts for regime-switching effects. Index factors are used to capture the returns from buy-and-hold strategies followed by hedge fund. Besides,...

Our paper reexamines the methodology of Fama and French (1993) for creating US empirical risk factors, and proposes an extension on the way to compute the mimicking portfolios. Our objective is to develop a modified Fama and French (F&F) methodology that could be easily implemented on other...

Factor performance is highly sensitive to the number of stocks composing its long and short basis portfolios. We examine three methodological choices that have an impact on portfolio diversification: the (in)dependence and the (a)symmetry of the stock sorting procedure and the sorting...