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Are hedge funds uncorrelated with financial markets? An empirical assessment

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  • Khaled Guesmi
  • Saoussen Jebri
  • Abdelkarim Jabri
  • Frédéric Teulon

Abstract

In this paper, we examine the correlations between hedge fund strategy indices and asset classes. Based on the Dynamic Conditional Correlation (DCC) GARCH Model, we estimate the correlations between hedge fund, stock, and bond indices during bull and bear markets. The results reveal that there are significant correlations between hedge funds and the stock market, especially during the recent financial crisis that took place from 2007 to 2009.

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Bibliographic Info

Paper provided by Department of Research, Ipag Business School in its series Working Papers with number 2014-103.

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Length: 7 pages
Date of creation: 25 Feb 2014
Date of revision:
Handle: RePEc:ipg:wpaper:2014-103

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Related research

Keywords: Hedge funds; Stock market.;

This paper has been announced in the following NEP Reports:

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  1. Mark Mitchell, 2001. "Characteristics of Risk and Return in Risk Arbitrage," Journal of Finance, American Finance Association, vol. 56(6), pages 2135-2175, December.
  2. 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.
  3. Vikas Agarwal, 2004. "Risks and Portfolio Decisions Involving Hedge Funds," Review of Financial Studies, Society for Financial Studies, vol. 17(1), pages 63-98.
  4. Daniel Capocci & Albert Corhay & Georges Hubner, 2005. "Hedge fund performance and persistence in bull and bear markets," The European Journal of Finance, Taylor & Francis Journals, vol. 11(5), pages 361-392.
  5. Fung, William & Hsieh, David A, 1997. "Empirical Characteristics of Dynamic Trading Strategies: The Case of Hedge Funds," Review of Financial Studies, Society for Financial Studies, vol. 10(2), pages 275-302.
  6. Abugri, Benjamin A. & Dutta, Sandip, 2009. "Emerging market hedge funds: Do they perform like regular hedge funds?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(5), pages 834-849, December.
  7. William Fung & David A. Hsieh & Narayan Y. Naik & Tarun Ramadorai, 2008. "Hedge Funds: Performance, Risk, and Capital Formation," Journal of Finance, American Finance Association, vol. 63(4), pages 1777-1803, 08.
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