AFFI International Conference 2017

Full Program »

The Beta Neutral Model with Leverage Effect and Mean reversion

File
View File
pdf
1.8MB

We present a beta neutral model that includes both leverage effect and mean reversion property to allow hedge fund managers targeting a near-zero beta for market neutral strategies. For this purpose, we derive a metrics of correlation with leverage effect that is employed to identify the fine relation between market beta and volatility changes. The subsequent beta neutral model is set with a mean reversion process to absorb potential volatility shocks. An empirical test based on the most popular market neutral strategies is run from 2000 to 2015 with exhaustive data sets including 600 American stocks and 600 European stocks from the S&P 500, Nasdaq 100, Euro stoxx
600. The findings confirm the reliability of the beta neutral model by highlighting the important bias from alternative measures in beta hedging, particularly when market is stressed.

Author(s):

S├ębastien Valeyre    
John Locke Invst/ Universite de Paris XIII, Sorbonne Paris Cite,
France

 

Powered by OpenConf®
Copyright©2002-2016 Zakon Group LLC