Are "market neutral" hedge funds really market neutral?

Journal Article

Using a variety of different definitions of "neutrality," this study presents significant evidence against the neutrality to market risk of hedge funds in a range of style categories. I generalize standard definitions of "market neutrality," and propose five different neutrality concepts. I suggest statistical tests for each neutrality concept, and apply these tests to a database of monthly returns on 1423 hedge funds from five style categories. For the "market neutral" style, approximately one-quarter of the funds exhibit significant exposure to market risk; this proportion is statistically significantly different from zero, but less than the proportion of significant exposures for other hedge fund styles.

Full Text

Duke Authors

Cited Authors

  • Patton, AJ

Published Date

  • 2009

Published In

Volume / Issue

  • 22 / 7

Start / End Page

  • 2295 - 2330

International Standard Serial Number (ISSN)

  • 0893-9454

Digital Object Identifier (DOI)

  • 10.1093/rfs/hhn113