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Is There Hedge Fund Contagion?

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Author Info
Boyson, Nicole M. (Northeastern U)
Stahel, Christof W. (George Mason U)
Stulz, Rene M. (Ohio State U)
Abstract

We examine whether hedge funds experience contagion. First, we consider whether extreme movements in equity, fixed income, and currency markets are contagious to hedge funds. Second, we investigate whether extreme adverse returns in one hedge fund style are contagious to other hedge fund styles. To conduct this examination, we estimate binomial and multinomial logit models of contagion using daily returns on hedge fund style indices as well as monthly returns on indices with a longer history. Our main finding is that there is no evidence of contagion from equity, fixed income, and foreign exchange markets to hedge funds, except for weak evidence of contagion for one single daily hedge fund style index. By contrast, we find strong evidence of contagion across hedge fund styles, so that hedge fund styles tend to have poor coincident returns.

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Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2006-1.

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Date of creation: Feb 2006
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Handle: RePEc:ecl:ohidic:2006-1

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  1. Eichengreen, Barry & Rose, Andrew & Wyplosz, Charles, 1996. " Contagious Currency Crises: First Tests," Scandinavian Journal of Economics, Blackwell Publishing, vol. 98(4), pages 463-84, December.
  2. Kristin Forbes & Roberto Rigobon, 1999. "No Contagion, Only Interdependence: Measuring Stock Market Co-movements," NBER Working Papers 7267, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Fung, William & Hsieh, David A, 2001. "The Risk in Hedge Fund Strategies: Theory and Evidence from Trend Followers," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 14(2), pages 313-41.
  4. Stephen J. Brown & William N. Goetzmann & Roger G. Ibbotson, 1997. "Offshore Hedge Funds: Survival and Performance 1989-1995," NBER Working Papers 5909, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Daniel Capocci, 2002. "An Analysis of Hedge Fund Performance," Finance 0210001, EconWPA. [Downloadable!]
  6. Fung, William & Hsieh, David A., 1999. "A primer on hedge funds," Journal of Empirical Finance, Elsevier, vol. 6(3), pages 309-331, September. [Downloadable!] (restricted)
  7. Baig, Taimur & Goldfajn, Ilan, 2002. "Monetary Policy in the Aftermath of Currency Crises: The Case of Asia," Review of International Economics, Blackwell Publishing, vol. 10(1), pages 92-112, February. [Downloadable!] (restricted)
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  8. McFadden, Daniel, 1974. "The measurement of urban travel demand," Journal of Public Economics, Elsevier, vol. 3(4), pages 303-328, November. [Downloadable!] (restricted)
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  1. Loriana Pelizzon & Monica Billio & Mila Getmansky, 2008. "Non-Parametric Analysis of Hedge Fund Returns: New Insights from High Frequency Data," Working Papers 2008_11, University of Venice "Ca' Foscari", Department of Economics. [Downloadable!]
  2. Monica Billio & Mila Getmansky & Loriana Pelizzon, 2007. "Dynamic Risk Exposure in Hedge Funds," Working Papers 2007_17, University of Venice "Ca' Foscari", Department of Economics. [Downloadable!]
  3. Monica Billio & Mila Getmansky & Loriana Pelizzon, 2006. "Phase-Locking and Switching Volatility in Hedge Funds," Working Papers 2006_54, University of Venice "Ca' Foscari", Department of Economics. [Downloadable!]
  4. Michel Aglietta & Sandra Rigot, 2008. "The regulation of hedge funds under the prism of the financial crisis," EconomiX Working Papers 2008-20, University of Paris West - Nanterre la Défense, EconomiX. [Downloadable!]
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