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Is There Hedge Fund Contagion?

  • Boyson, Nicole M.

    (Northeastern U)

  • Stahel, Christof W.

    (George Mason U)

  • Stulz, Rene M.

    (Ohio State U)

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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File URL: http://www.cob.ohio-state.edu/fin/dice/papers/2006/2006-1.pdf
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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
Contact details of provider: Phone: (614) 292-8449
Web page: http://www.cob.ohio-state.edu/fin/dice/list.htm
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