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 iden...

This study provides novel evidence on the role of ambiguity aversion in determining the response of mutual fund investors to historical fund performance information. We present a model of ambiguity averse investors who receive multiple performance-based signals of uncertain precision about manager skill. A key implication of the model is that when investors receive multiple signals of uncertain...

We find that the performance distribution of the individual stocks inside a mutual fund can toss out additional information about the fund manager’s stock picking ability. When a mutual fund contains mostly mediocre-performing stocks but one super-performer, it is likely that the overall fund performance, albeit good, would be due to luck. On the other hand, a fund that has a larger number of a...