Is There Hedge Fund Contagion?

Boyson, Nicole M.; Stahel, Christof W.; Stulz, René M.

doi:10.3386/w12090

Cited by 32 publications

(47 citation statements)

References 49 publications

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“…Alternatively, these findings may lend support to Rajan's (2005) assertion of herding behavior among asset managers generally, a concern also raised by the CRMPG (2005) in what they call "crowded trades," but disputed by EDHEC (2006). Overall, however, the conclusion drawn by Boyson, Stahel and Stulz (2006) is worth noting:…”

Section: Externalitiesmentioning

confidence: 96%

“…As perhaps befitting their name, hedge fund returns tend to be only weakly (linearly) correlated with broad market returns Hsieh 1999, andBoyson et al 2006), although Garbaravicius and Dierick (2005) provide evidence that this correlation has been increasing over recent years. Yet the ECB documents that hedge funds have become more correlated with each other: "the levels reached in late 2005 exceeded those that had prevailed just before the near-collapse of LTCM," (ECB (2006), p. 134), although Adrian (2007) concludes that this primarily reflects lower overall volatility in the recent period.…”

Section: Externalitiesmentioning

confidence: 99%

“…Boyson, Stahel and Stulz (2006) analyze co-occurrences of extreme moves (5-15% tail events), which they call contagion. They find no supporting evidence of contagion from extreme moves in the underlying risk factors -equity, fixed income and currency markets -but they do find evidence of contagion across hedge fund styles.…”

Section: Externalitiesmentioning

confidence: 99%

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Hedge Funds, Financial Intermediation, and Systemic Risk

Kambhu

Stiroh

Schuermann³

2007

SSRN Journal

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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 AbstractHedge funds are significant players in the U.S. capital markets, but differ from other market participants in important ways such as their use of a wide range of complex trading strategies and instruments, leverage, opacity to outsiders, and their compensation structure. The traditional bulwark against financial market disruptions with potential systemic consequences has been the set of counterparty credit risk management (CCRM) practices by the core of regulated institutions. The characteristics of hedge funds make CCRM more difficult as they exacerbate market failures linked to agency problems, externalities, and moral hazard. While various market failures may make CCRM imperfect, it remains the best line of defense against systemic risk.

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Section: Externalitiesmentioning

confidence: 96%

Section: Externalitiesmentioning

confidence: 99%

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Hedge Funds, Financial Intermediation, and Systemic Risk

Kambhu

Stiroh

Schuermann³

2007

SSRN Journal

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“…The empirical studies by Boyson et al (2006) and Li and Kazemi (2007) are among the few studies that analyze not only monthly hedge fund returns, but also daily hedge fund return data. Boyson et al (2006) apply binomial and multinomial logit models of contagion to explore whether extreme movements in equity, fixed income and currency markets are contagious to hedge funds.…”

Section: Academic Research Analyzing the Statistical Properties Of Hementioning

confidence: 99%

“…Boyson et al (2006) apply binomial and multinomial logit models of contagion to explore whether extreme movements in equity, fixed income and currency markets are contagious to hedge funds. They conclude that there is no evidence of contagion from equity, fixed income and currency markets to hedge funds, except for weak evidence of contagion for one single daily hedge fund style index.…”

Section: Academic Research Analyzing the Statistical Properties Of Hementioning

confidence: 99%

What do we know about the risk and return characteristics of hedge funds?

Viebig

2012

J Deriv Hedge Funds

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This article gives an overview of the risk and return characteristics of hedge funds. Analyzing the extensive research on hedge funds during the past two decades, this article discusses the style-specific risks of hedge funds, reviews the findings on the statistical properties of hedge funds and assesses the research on nonlinear, regime-dependent risks of hedge funds. Asset-based style factor models and regime-switching models both suggest that several (but not all) hedge fund strategies exhibit nonlinear, option-like payoffs. In recent empirical studies, financial economists argue that hedge funds are exposed to considerable credit, liquidity and bankruptcy risks in periods of stress in financial markets and that a widespread fraud problem may exist in the widely unregulated hedge fund industry.

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What is the impact of stock market contagion on an investor’s portfolio choice?

Branger

Kraft

Meinerding

2009

Insurance: Mathematics and Economics

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Stocks are exposed to the risk of sudden downward jumps. Additionally, a crash in one stock (or index) can increase the risk of crashes in other stocks (or indices). Our paper explicitly takes this contagion risk into account and studies its impact on the portfolio decision of a CRRA investor both in complete and in incomplete market settings. We find that the investor significantly adjusts his portfolio when contagion is more likely to occur. Capturing the time dimension of contagion, i.e. the time span between jumps in two stocks or stock indices, is thus of first-order importance when analyzing portfolio decisions. Investors ignoring contagion completely or accounting for contagion while ignoring its time dimension suffer large and economically significant utility losses. These losses are larger in complete than in incomplete markets, and the investor might be better off if he does not trade derivatives. Furthermore, we emphasize that the risk of contagion has a crucial impact on investors' security demands, since it reduces their ability to diversify their portfolios.

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Is There Hedge Fund Contagion?

Cited by 32 publications

References 49 publications

Hedge Funds, Financial Intermediation, and Systemic Risk

Hedge Funds, Financial Intermediation, and Systemic Risk

What do we know about the risk and return characteristics of hedge funds?

What is the impact of stock market contagion on an investor’s portfolio choice?

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