Risk spillover among hedge funds: The role of redemptions and fund failures
AbstractThis paper aims at analysing the mortality patterns of hedge funds over the period January 1994 to May 2008. In particular, we investigate the extent to which a spillover of risk among hedge funds through redemptions and failures of other funds has affected the probability of fund failure. We find that risk spill-over is significantly related to the failure probability of hedge funds, with the relation being more pronounced for redemptions than for failures of other funds. Hedge funds within the same investment style are adversely affected through both channels of risk spillover. In addition, we find that funds being diversified in assets and geographically have a significantly lower failure probability and are not affected by risk spillover via redemptions. JEL Classification: G11, G20, G23, G33
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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 1112.
Date of creation: Nov 2009
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Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
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- Adams, Zeno & Füss, Roland & Gropp, Reint, 2013. "Spillover effects among financial institutions: A state-dependent sensitivity value-at-risk approach," SAFE Working Paper Series 20, Center of Excellence SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
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- 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.
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