Asymmetric Returns and Sector Specialists

Abstract

Returns from long-only exposure to equity and bond markets are fairly symmetrical. However, investors prefer asymmetrical returns over symmetrical returns as they prefer gains over losses and are averse to large drawdowns. Symmetric returns can be achieved through passive investment vehicles whereas asymmetrical returns require active risk management whereby risk is defined in absolute terms. This article examines asymmetric returns of long/short hedge fund managers who specialize in one sector only.