Browsing by Subject "Options"
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Item Investment skill of hedge funds : a holdings-based evaluation(2015-08) Maslennikov, Sergey Nikolaevich; Johnson, Travis L.; Titman, Sheridan; Sialm, Clemens; Schneider, Jan; Tompaidis, EfstathiosIn Chapter 1, I provide new compelling evidence that hedge funds possess investment skill. Using the longest-in-literature hedge fund sample with fewer biases, I show that large holdings of past winners earn 7% annual benchmark-adjusted return. This remarkable performance is consistent with the notion that large holdings represent managers' best ideas. My sample goes back to 1980 and does not miss non-surviving hedge funds, or those that do not voluntarily report to commercial databases. It consists of all investment managers that must report to the SEC, except those that I identify as managers other than hedge funds. While publicly available data is not sufficient to identify hedge funds directly, my "reverse identification" method achieves both high sensitivity and specificity. I also find weaker yet significant evidence of investment skill in standard indicators such as average fund performance and performance persistence. Additionally, I study the announcement effect of 13F holdings disclosure on the disclosed stock return and trading volume. In Chapter 2, I provide new evidence on market timing by studying ETF option holdings of hedge funds. I find that market option holdings are economically significant in terms of their impact on the market exposure of the funds. Further, I find significant time variation in market option holdings, which could be due to market timing activity. I find that market option holdings are associated with such fund characteristics as active share and market exposure of the fund due to its stock holdings; this evidence is consistent with options being used for hedging. Increases in aggregate hedge fund industry holdings of market put options predict low market returns. In the cross-section of hedge funds, the top 5% group has market volatility timing skill that is distinguished from luck with a bootstrapping test. Additionally, I measure market timing ability as the average risk-adjusted return on market option holdings, which, due to data limitations, requires additional assumptions about option prices. I find that this market timing ability is close to zero for the average fund but it is negative for heavy option users.Item The mathematics of hedging(2009-12) Chen, Yi-Jen Elaine; Jablonowski, Christopher J.; Groat, Charles G.Possessing the knowledge to hedge energy price risks properly is essential and crucial for running a long-term business. In the past, many hedging instruments have been invented and widely used. By using these derivatives, decision makers reduce the price risk to a certain degree. To apply these hedging instruments to the perfect hedging strategies correctly, it is necessary to be familiar with these tools in the first place. This work introduces the financial tools widely applied in hedging, including forward contracts, futures, swaps and options. It also introduces the hedging strategies used on energy hedging. Since individuals are creating strategies according to their unique risk appetite and collected information, this work presents three risk appetites and a method of distinguishing valuable information. With the contribution of this thesis, future works can be done in the field that connect the information valuation and energy hedging by changing the behavior in each risk appetites’ hedging ratio.Item Predictability of contract failure in the U.S. financial futures markets(Texas Tech University, 1998-08) Suh, Jeong HoDerivatives markets have seen a great deal of changes for the last few decades. Many new contracts have been introduced to the public. Many new exchanges have been established worldwide. More than anything else, the number of participants in derivatives markets has increased in a dramatic fashion probably because of the potential capability of risk management and attractive speculative opportunities that exist in those markets. In the midst of this fastgrowing trend, futures exchanges have been very active in introducing new contracts to meet investor's needs for hedging and speculation. However, it is quite surprising that only one quarter to one third of new innovations have achieved economically viable trading volume in the following years, whereas exchanges commonly spend $300,000 to $2,000,000 for development and marketing of a new contract. The main objective of this dissertation is to examine the predictability of contract failure in futures markets. Motivated by the fact that the current literature disregards the time-series predictability of a model, we investigate whether we can predict failure of a contract using already existing information. In order to achieve this goal, we employ a survival analysis model which provides two major benefits. First, a survival analysis model can simultaneously deliver the information about the probability and timing of contract failure. This model is based on the dichotomous classification of the dependent variable, which has not been formally attempted for a general econometric model in this area. Second, a survival analysis model enables us to accommodate both time-series and crosssectional variations in a panel data set. Previous research is only concerned with the cross-sectional dimension of the relationship between contract success and "determinants."