Journal article
Out of the money or striking it rich? Evidence on the risk-adjusted return performance of options-based equity funds versus the S&P 500 and other benchmark alternatives
The Journal of Investing, Vol.27(1), pp.65-79
2018
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Source: InCites
Abstract
<p>This article examines the risk–return characteristics of 29 options-based equity funds, their self-specified S&P 500 total return benchmark index, and a suite of alternative options-based strategy indexes in the United States from 2010 to 2015. Using a multifactor risk-adjustment model, the authors attempt to establish whether fund managers are choosing suitable benchmark indexes in terms of their funds’ investment style/strategy and risk profile. Our findings indicate that options-based fund managers are unable to outperform both before and after adjusting for risk and after consideration of management/transaction costs. They also show that the S&P 500 total return index may not be the most appropriate benchmark for options-based funds. For instance, options-based fund managers appear to be selecting broad-based equity benchmark indexes that do not adequately reflect the risk–return characteristics associated with the funds’ investment strategy/options trading activities, thus understating their risk-adjusted performance. By considering alternative approaches to abnormal performance measurement, fund managers, investors, market regulators, and academics can significantly change the conclusions they draw regarding the economic contribution of options-based fund managers. Furthermore, market participants can more accurately assess risk-adjusted options-based performance and fund-specific risk characteristics relative to the benchmark index chosen by the manager or to alternative benchmark indexes.</p>
Details
- Title
- Out of the money or striking it rich? Evidence on the risk-adjusted return performance of options-based equity funds versus the S&P 500 and other benchmark alternatives
- Creators
- Bruce A Costa (Author) - University of MontanaKeith Jakob (Author) - University of MontanaScott J Niblock (Author) - Southern Cross University
- Publication Details
- The Journal of Investing, Vol.27(1), pp.65-79
- Publisher
- Portfolio Management Research
- Identifiers
- 1926; 991012820722202368
- Academic Unit
- Management; School of Business and Tourism; Faculty of Business, Law and Arts
- Language
- English
- Resource Type
- Journal article