Multiple Moderation Process of the Tail-Risk Hedging Managers

One-month prior market momentum factor’s mediation on the contemporaneous excess market return’s effect on the current performance of certain hedge fund investment styles through one-month prior VIX level as the first moderator is moderated if the indirect effect of the one-month prior market momentum factor depends on the size of the returns of one-month prior VIX as the second moderator. This manuscript advances the literature by applying quantitative approaches to financial time-series by estimating and making inferences about the conditional process models with more than one moderator. We subsequently show how to test if a market risk factor’s indirect effect on the returns of various hedge fund investment style is moderated by one variable when these two moderators are switching their primary and the secondary seats of dependency roles. (STV) as a measure to quantify the amount of variation or dispersion of a set of individual fund’s style exposures. Their method implies that market timing ability results in a convex relation between individual fund returns and the various style as well as market factors. The analysis makes use of daily returns instead of typical hedge fund monthly returns to increase their statistical power (and the subsequent noise as well). The study evaluates the relationship between the three market-timing indicators such as STV, Volatility Timer, and Treynor-Mazuy type Market Timer, to the excess returns and Sharpe ratios of reclassified quintile hedge fund groups to identify those talented active style and volatility timers. Some hedge funds demonstrated enhanced risk-adjusted returns through a wider range of volatility timing behavior, while their active style bets did not necessarily result in persistent outperformance compared to the peer managers.