Commonality in hedge fund returns: driving factors and implications
AbstractWe measure the commonality in hedge fund returns, identify its main driving factor and analyze its implications for financial stability. We find that hedge funds’ commonality increased significantly from 2003 until 2006. We attribute this rise mainly to the increase in hedge funds’ exposure to emerging market equities, which we identify as a common factor in hedge fund returns over this period. Our results show that funds with a high commonality were affected disproportionately by illiquidity and exhibited negative returns during the subsequent financial crisis, thereby providing little diversification benefits to the financial system and to investors.
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Bibliographic InfoPaper provided by Banque de France in its series Working papers with number 373.
Length: 48 pages
Date of creation: 2012
Date of revision:
Hedge funds; commonality; financial stability.;
Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
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- Dritan Gjika & Roman Horvath, 2012.
"Stock Market Comovements in Central Europe: Evidence from Asymmetric DCC Model,"
William Davidson Institute Working Papers Series
wp1035, William Davidson Institute at the University of Michigan.
- Dritan Gjika & Roman Horváth, 2012. "Stock Market Comovements in Central Europe: Evidence from Asymmetric DCC Model," Working Papers 322, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).
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