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Hedge fund styles and macroeconomic uncertainty
Platania, Federico; Lambert, Marie
201633rd International AFFI Conference 2016
 

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Abstract :
[en] This paper examines the dynamic trading strategies implemented by hedge fund managers using a Kalman filter of hedge fund betas across styles. We further investigate the risk drivers of dynamic trades, examining which conditioning/macroeconomic variables strongly lead the time variation in fund trades. We report the significance of macroeconomic factors such as interest rates, dividend yield, GDP growth and US unemployment. We show that hedge fund managers do control the intensity of their exposures according to economic uncertainty and that differences between up- and down-market regimes can be observed. Commonly, Hedge funds tend to dislike high-dividend paying stocks. Besides, all hedge fund styles are shown to display pro-cyclical exposures towards directional equity factors as well as credit and liquidity risks. Small growth stocks, however, are revealed to be crisis investments whose allocation increases with unemployment, inflation or volatility. As volatility increases, the value of growth options embedded into growth stocks indeed increases. Growth stocks are shown to hedge market reversals and volatility. The outperformance of growth companies in recessions might also relate to their cost flexibility. Allocation to small stocks embed strong micro risks and might also constitute a hedge in economic slowdowns. This might explain why some funds with such a particular investment focus appear to be countercyclical.
Disciplines :
Finance
Author, co-author :
Platania, Federico ;  Université de Liège > HEC-Ecole de gestion : UER > Analyse financière et finance d'entreprise
Lambert, Marie ;  Université de Liège > HEC-Ecole de gestion : UER > Analyse financière et finance d'entreprise
Language :
English
Title :
Hedge fund styles and macroeconomic uncertainty
Publication date :
25 May 2016
Event name :
33rd International AFFI Conference 2016
Event date :
25-05-2016
Audience :
International
Available on ORBi :
since 09 June 2016

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