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Do risk management practices work? Evidence from hedge funds

Author

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  • Gavin Cassar

    (INSEAD)

  • Joseph Gerakos

    (Tuck School of Business at Dartmouth College)

Abstract

We examine hedge fund risk management practices and their association with left-tail risk during the 2008 financial crisis. Consistent with risk management practices reducing left-tail risk, funds in our sample that use formal risk models performed significantly better in the extreme down months of 2008. We find no evidence that having either position limits or a dedicated head of risk management is associated with reduced left-tail risk. Funds employing value at risk models had more accurate expectations of how they would perform in a short-term equity bear market.

Suggested Citation

  • Gavin Cassar & Joseph Gerakos, 2017. "Do risk management practices work? Evidence from hedge funds," Review of Accounting Studies, Springer, vol. 22(3), pages 1084-1121, September.
    • Handle: RePEc:spr:reaccs:v:22:y:2017:i:3:d:10.1007_s11142-017-9403-5
    DOI: 10.1007/s11142-017-9403-5
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    Cited by:

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    2. Mike Adams & Wei Jiang & Tianshu Ma, 2024. "CEO power, corporate risk management, and dividends: disentangling CEO managerial ability from entrenchment," Review of Quantitative Finance and Accounting, Springer, vol. 62(2), pages 683-717, February.

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    More about this item

    Keywords

    Risk management; Hedge funds; Financial crisis;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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