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Dynamic prediction of hedge fund survival in crisis-prone financial markets

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  • Lee, Hee Soo
  • Kim, Tae Yoon

Abstract

This study focuses on dynamic changes in survival probabilities over the lifetimes of hedge funds. To model such probabilities, a mixed Cox proportional hazards (CPH) model-specifically, a survival/hazard model with time-varying covariates and fixed covariates- is employed. Resulting dynamic survival probabilities show that the mixed CPH model provides significantly higher accuracy in predicting hedge fund failure than other models in the literature, including fixed covariate CPH models and discrete logit models. Our results are useful to investors and regulators of hedge funds in crisis-prone financial markets.

Suggested Citation

  • Lee, Hee Soo & Kim, Tae Yoon, 2014. "Dynamic prediction of hedge fund survival in crisis-prone financial markets," Journal of Banking & Finance, Elsevier, vol. 39(C), pages 57-67.
    • Handle: RePEc:eee:jbfina:v:39:y:2014:i:c:p:57-67
    DOI: 10.1016/j.jbankfin.2013.11.013
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    References listed on IDEAS

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    More about this item

    Keywords

    Hedge fund failure; Mixed Cox proportional hazards model; Time-varying covariates; Survival probability prediction; Crisis-prone financial markets;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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