[en] Stock and option markets can at times reflect differing information. We identify three reasons for
the presence of these periods of "disagreement" between the cash and derivatives markets: 1) high
volatility and noise trading; 2) high level of risk aversion; 3) speculation versus hedging trades.
This paper investigates the role that hedge funds, a proxy for sophisticated investors, play in
the price discovery process between stock and option markets and the disagreement/agreement
periods. We observe that a disparity in information between the two markets is often associated
with deleveraging in directional exposures and reversal strategies. Posterior to the event, active
tactical asset allocation in small and value factor investing takes place. We investigate four
specific macro events which resulted in significant rebalancing by hedge fund manegers: the Thai
Baht depreciation, the Dot-com bubble, the credit crunch and the Nasdaq correction.
Disciplines :
Finance
Author, co-author :
Lambert, Marie ; Université de Liège - ULiège > HEC Liège : UER > Analyse financière et finance d'entreprise
Papapeorgiou, Nicolas
Platania, Federico
Language :
English
Title :
Market efficiency and hedge fund trading strategies
