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The Relationship between Hedge Fund Performance and Stock Market Sentiment

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  • Yao Zheng

    (Department of Finance, Northern Illinois University, DeKalb, IL, USA)

  • Eric Osmer

    (Department of Finance, Northern Illinois University, DeKalb, IL, USA)

Abstract

We examine the dynamic effect of aggregate stock market sentiment on the performance of various hedge fund styles. We find that hedge funds typically perform better during periods of optimistic sentiment and that for different hedge fund styles there is a differential response of hedge fund returns to positive and negative sentiment shocks. We also find that changes in aggregate investor sentiment have a larger effect on hedge fund performance during periods of high conditional volatility. Our results suggest there is a strong asymmetry in the relationship between hedge fund performance and investor sentiment.

Suggested Citation

  • Yao Zheng & Eric Osmer, 2018. "The Relationship between Hedge Fund Performance and Stock Market Sentiment," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 21(03), pages 1-29, September.
    • Handle: RePEc:wsi:rpbfmp:v:21:y:2018:i:03:n:s0219091518500169
    DOI: 10.1142/S0219091518500169
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    3. Alex YiHou Huang & Ming-Che Hu & Quang Thai Truong, 2021. "Asymmetrical impacts from overnight returns on stock returns," Review of Quantitative Finance and Accounting, Springer, vol. 56(3), pages 849-889, April.

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