Defining contagion as correlation over and above that expected from economic fundamentals, we find strong evidence of worst return contagion across hedge fund styles for 1990 to 2008. Large adverse shocks to asset and hedge fund liquidity strongly increase the probability of contagion. Specifically, large adverse shocks to credit spreads, the TED spread, prime broker and bank stock prices, stock market liquidity, and hedge fund flows are associated with a significant increase in the probability of hedge fund contagion. While shocks to liquidity are important determinants of performance, these shocks are not captured by commonly used models of hedge fund returns. Copyright (c) 2010 the American Finance Association.

Hedge funds, Activism, Corporate governance, G11, G34,

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes.You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. licence. www.econstor.eu If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated AbstractRecently there has been a rapid growth in the assets managed by "hedged mutual funds" -mutual funds mimicking hedge funds strategies. In this paper, we examine the performance of these funds relative to hedge funds and traditional mutual funds. We find that despite their use of similar trading strategies, hedged mutual funds underperform hedge funds. We attribute this evidence to lighter regulation and better incentives faced by hedge funds. In contrast, hedged mutual funds outperform traditional mutual funds. Most interesting, this superior performance is largely driven by managers with experience in implementing hedge fund strategies. Our findings have important implication for investors seeking hedgefund-like payoffs at a lower cost and within the comfort of a regulated environment. Hedge funds for retail investors? An examination of hedged mutual fundsFairly recently, a number of mutual fund companies have begun offering funds that use hedge-fund-like trading strategies designed to benefit from potential mispricing on the long as well as the short side. Recognizing that these funds are unique, Morningstar and Lipper have created the new style categories of "Long/Short Equity" and "Market Neutral" to classify these funds. Despite their use of hedge fund strategies, these "hedged" mutual funds are regulated by the Securities and Exchange Commission (SEC) in exactly the same way as "traditional" mutual funds. They are available to retail investors, with an average required minimum investment of just $5,000, while hedge funds are only available to accredited and/or qualified investors with a minimum investment of roughly $1 million. 1 We believe that hedged mutual funds will play an increasingly important role in the field of investment management as they provide access to hedge-fund-like strategies with the fee structure, liquidity, and regulatory requirements of mutual funds.2 This paper conducts an indepth analysis of this new class...