Is There Hedge Fund Contagion?
AbstractWe 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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Date of creation: Mar 2006
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- Boyson, Nicole & Stahel, Christof & Stulz, Rene, 2008. "Is There Hedge Fund Contagion," Working Papers 08-2, University of Pennsylvania, Wharton School, Weiss Center.
- Boyson, Nicole M. & Stahel, Christof W. & Stulz, Rene M., 2006. "Is There Hedge Fund Contagion?," Working Paper Series 2006-1, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-11 (All new papers)
- NEP-BEC-2006-03-11 (Business Economics)
- NEP-DCM-2006-03-11 (Discrete Choice Models)
- NEP-FIN-2006-03-11 (Finance)
- NEP-FMK-2006-03-11 (Financial Markets)
- NEP-RMG-2006-03-11 (Risk Management)
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