publication . Report . Preprint . 2008

Hedge Fund Contagion and Liquidity

Nicole M. Boyson; Christof W. Stahel; Rene M. Stulz;
Open Access
  • Published: 01 Jun 2008
  • Publisher: National Bureau of Economic Research
Abstract
Using hedge fund indices representing eight different styles, we find strong evidence of contagion within the hedge fund sector: controlling for a number of risk factors, the average probability that a hedge fund style index has extreme poor performance (lower 10% tail) increases from 2% to 21% as the number of other hedge fund style indices with extreme poor performance increases from zero to seven. We investigate how changes in funding and asset liquidity intensify this contagion, and find that the likelihood of contagion is high when prime brokerage firms have poor performance (which would be expected to affect hedge fund funding liquidity adversely) and when...
Subjects
free text keywords: Open-end fund, Funding liquidity, Alternative beta, Performance fee, Business, Returns-based style analysis, Hedge fund, business.industry, Income fund, Prime brokerage, Financial system, jel:G11, jel:G12, jel:G18, jel:G23

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