Survival of Hedge Funds : Frailty vs Contagion
AbstractIn this paper we examine the dependence between the liquidation risks of individual hedge funds. This dependence can result either from common exogenous shocks (shared frailty), or from contagion phenomena, which occur when an endogenous behaviour of a fund manager impacts the Net Asset Values of other funds. We introduce dynamic models able to distinguish between frailty and contagion phenomena, and test for the presence of such dependence effects, according to the age and management style of the fund. We demonstrate the empirical relevance of our approach by measuring the magnitudes of contagion and exogenous frailty in liquidation risk dependence in the TASS database. The empirical analysis is completed by stress-tests on portfolios of hedge funds.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2012-36.
Date of creation: Nov 2012
Date of revision:
Hedge Fund; Liquidation Correlation; Frailty; Contagion; Dynamic Count Model; Autoregressive Gamma Process; Systemic Risk; Stress-tests; Liquidation Swap; Funding Liquidity; Market Liquidity.;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-04 (All new papers)
- NEP-FMK-2013-06-04 (Financial Markets)
- NEP-RMG-2013-06-04 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Joann Jasiak & Christian Gourieroux, 2006. "Autoregressive gamma processes," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 25(2), pages 129-152.
- Carrasco, Marine & Chernov, Mikhail & Florens, Jean-Pierre & Ghysels, Eric, 2007. "Efficient estimation of general dynamic models with a continuum of moment conditions," Journal of Econometrics, Elsevier, vol. 140(2), pages 529-573, October.
- Stephen J. Brown & William N. Goetzmann & Bing Liang, 2003.
"Fees on Fees in Funds of Funds,"
NBER Working Papers
9464, National Bureau of Economic Research, Inc.
- Stephen J. Brown & William N. Goetzmann & Bing Liang, 2004. "Fees on Fees in Funds of Funds," Yale School of Management Working Papers ysm18, Yale School of Management.
- Stephen Brown & William Goetzmann & Bing Liang, 2002. "Fees on Fees in Funds of Funds," Yale School of Management Working Papers ysm309, Yale School of Management, revised 01 Sep 2009.
- David S. Bates, 2006. "Maximum Likelihood Estimation of Latent Affine Processes," Review of Financial Studies, Society for Financial Studies, vol. 19(3), pages 909-965.
- Giesecke, Kay & Weber, Stefan, 2004. "Cyclical correlations, credit contagion, and portfolio losses," Journal of Banking & Finance, Elsevier, vol. 28(12), pages 3009-3036, December.
- Czado, Claudia & Delwarde, Antoine & Denuit, Michel, 2005. "Bayesian Poisson log-bilinear mortality projections," Insurance: Mathematics and Economics, Elsevier, vol. 36(3), pages 260-284, June.
- Nicole M. Boyson & Christof W. Stahel & René M. Stulz, 2010. "Hedge Fund Contagion and Liquidity Shocks," Journal of Finance, American Finance Association, vol. 65(5), pages 1789-1816, October.
- Stefan Weber & Kay Giesecke, 2003. "Credit Contagion and Aggregate Losses," Computing in Economics and Finance 2003 246, Society for Computational Economics.
- Chesher, Andrew D, 1984. "Testing for Neglected Heterogeneity," Econometrica, Econometric Society, vol. 52(4), pages 865-72, July.
- Stephen Brown & William Goetzmann & Bing Liang & Christopher Schwarz, 2006.
"Mandatory Disclosure and Operational Risk: Evidence from Hedge Fund Registration,"
Yale School of Management Working Papers
amz2472, Yale School of Management, revised 11 Sep 2009.
- Stephen Brown & William Goetzmann & Bing Liang & Christopher Schwarz, 2008. "Mandatory Disclosure and Operational Risk: Evidence from Hedge Fund Registration," Journal of Finance, American Finance Association, vol. 63(6), pages 2785-2815, December.
- Liang, Bing, 2000. "Hedge Funds: The Living and the Dead," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(03), pages 309-326, September.
- Sadka, Ronnie, 2010. "Liquidity risk and the cross-section of hedge-fund returns," Journal of Financial Economics, Elsevier, vol. 98(1), pages 54-71, October.
- Carl Ackermann & Richard McEnally & David Ravenscraft, 1999. "The Performance of Hedge Funds: Risk, Return, and Incentives," Journal of Finance, American Finance Association, vol. 54(3), pages 833-874, 06.
- Serge Darolles & Christian Gourieroux & Joann Jasiak, 2006. "Structural Laplace Transform and Compound Autoregressive Models," Journal of Time Series Analysis, Wiley Blackwell, vol. 27(4), pages 477-503, 07.
- Sanjiv Das & Darrell Duffie & Nikunj Kapadia & Leandro Saita, 2006.
"Common Failings: How Corporate Defaults are Correlated,"
NBER Working Papers
11961, National Bureau of Economic Research, Inc.
- Sanjiv R. Das & Darrell Duffie & Nikunj Kapadia & Leandro Saita, 2007. "Common Failings: How Corporate Defaults Are Correlated," Journal of Finance, American Finance Association, vol. 62(1), pages 93-117, 02.
- Jennifer Carpenter & Anthony Lynch, 1998.
"Survivorship Bias and Attrition Effects in Measures of Performance Persistence,"
New York University, Leonard N. Stern School Finance Department Working Paper Seires
98-077, New York University, Leonard N. Stern School of Business-.
- Carpenter, Jennifer N. & Lynch, Anthony W., 1999. "Survivorship bias and attrition effects in measures of performance persistence," Journal of Financial Economics, Elsevier, vol. 54(3), pages 337-374, December.
- Darrell Duffie & Andreas Eckner & Guillaume Horel & Leandro Saita, 2009.
"Frailty Correlated Default,"
Journal of Finance,
American Finance Association, vol. 64(5), pages 2089-2123, October.
- Mark Carlson & Jason Steinman, 2008. "Market conditions and hedge fund survival," Finance and Economics Discussion Series 2008-28, Board of Governors of the Federal Reserve System (U.S.).
- Greg N. Gregoriou & Razvan Pascalau, 2012. "A joint survival analysis of hedge funds and funds of funds using copulas," Managerial Finance, Emerald Group Publishing, vol. 38(1), pages 82-100, January.
- Lando, David & Nielsen, Mads Stenbo, 2010. "Correlation in corporate defaults: Contagion or conditional independence?," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 355-372, July.
- Donald W.K. Andrews & Werner Ploberger, 1992.
"Optimal Tests When a Nuisance Parameter Is Present Only Under the Alternative,"
Cowles Foundation Discussion Papers
1015, Cowles Foundation for Research in Economics, Yale University.
- Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
- Yacine Aït-Sahalia & Julio Cacho-Diaz & Roger J.A. Laeven, 2010. "Modeling Financial Contagion Using Mutually Exciting Jump Processes," NBER Working Papers 15850, National Bureau of Economic Research, Inc.
- Brown, Stephen J, et al, 1992. "Survivorship Bias in Performance Studies," Review of Financial Studies, Society for Financial Studies, vol. 5(4), pages 553-80.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Florian Sallaberry).
If references are entirely missing, you can add them using this form.