Recently, the number of volatility indexes has increased. However, it is not clear whether futures on these indexes provide real opportunities to hedge asset class‐specific risks or they are merely a form of highly correlated, information overload. This paper investigates this question by examining dependence relationships among 29 volatility indexes in three categories using five techniques. While class‐specific variation matters, we find that higher order relationships are present, and that a significant level of spillover, across these indexes exists. One common, market‐driven volatility factor appears to dominate the interrelationships. We propose three possible explanations for this phenomenon. We argue that much of risk can be hedged using options on the VIX.

This article examines herding among hedge fund styles and uncovers new intuitions about the industry. By examining hedge fund style index returns using four techniques, we show that perceptions of herding may differ based on the choice of analytical method. Our analysis with independent component analysis is new, and we show that over time the various styles have evolved to meet the variance expectations of investors. We infer that hedge fund managers are adding value through techniques that deliver consistent returns derived from idiosyncratic factors that appear in higher moments.

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