Bear Factor and Hedge Fund Performance

We show that a simple and intuitive variable, the return of bear spread portfolio orthogonalized with respect to market (H-Bear factor), can serve as new benchmark for explaining cross-section hedge fund returns. Low H-Bear exposure funds (bear risk insurance sellers) outperform high buyers) by 0.58% per month on average, even during crashes, but underperform when materializes. Overall, we identify dimension affects performance, this factor is distinct from already popular realized tail risk.