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Is There Hedge Fund Contagion?

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  • Nicole M. Boyson
  • Christof W. Stahel
  • Rene M. Stulz

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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12090.

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Date of creation: Mar 2006
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Handle: RePEc:nbr:nberwo:12090

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Cited by:
  1. Bank for International Settlements, 2007. "Institutional investors, global savings and asset allocation," CGFS Papers, Bank for International Settlements, number 27, January.
  2. 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.

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