Topic: Do Hedge Funds Hedge? Evidence from Risk Gap
Speaker: Yong Chen, Professor of Finance, Mays Business School, Texas A&M University
Date: March 23, 2022 (Wednesday)
Time: 10:00-11:30
Location: 4-101
Language: English
Abstract:
We examine the hedging practice of hedge funds by proposing a measure of risk gap between hedge fund returns and stock holdings. In a comprehensive sample, about 78% of hedge funds have a negative risk gap. Risk gap significantly predicts future fund performance in the cross-section. On average, hedge funds in the bottom quintile ranked by risk gap outperform those in the top quintile by 3.87% per year on a risk-adjusted basis. Moreover, risk gap is significantly related to interfund connectedness and liquidation risk. Overall, our results suggest that hedge funds that engage in risk management have better performance and lower systemic risk.
About the speaker:
Yong Chen is a Professor of Finance, the David R. Norcom ’73 Endowed Professor, and Director of the Finance Ph.D. Program at Mays Business School, Texas A&M University. Prior to joining Mays Business School in 2012, he was on the faculty of Virginia Tech. Dr. Chen received B.A. and M.A. in Economics from Nankai University and Ph.D. in Finance from Boston College.
Dr. Chen’s research area is empirical asset pricing and investments with a focus on the interaction between the investment of hedge funds and the behavior of asset prices. His research has been published in leading academic journals including the Journal of Finance, the Journal of Financial Economics, the Review of Financial Studies, the Journal of Financial and Quantitative Analysis, and Management Science and practitioner journals including Financial Analysts Journal and the Journal of Investment Management, as well as presented at numerous university workshops, academic and practitioner conferences, financial policymakers, and hedge funds. His research has received several awards and grants, such as the Graham and Dodd Scroll Award from the CFA Institute and a research grant from the Q group.
Dr. Chen has taught advanced investments, derivatives, portfolio management, and empirical asset pricing at the undergraduate, MBA, MSF, and doctoral levels.
