Abstract

http://ssrn.com/abstract=2019482
 
 

References (38)



 
 

Citations (3)



 


 



Tail Risk and Hedge Fund Returns


Bryan T. Kelly


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Hao Jiang


University of Texas at Austin

November 1, 2012

Chicago Booth Research Paper No. 12-44
Fama-Miller Working Paper

Abstract:     
We document large, persistent exposures of hedge funds to downside tail risk. For instance, the hardest hit hedge funds in the 1998 crisis also suffered predictably worse returns than their peers in 2007-2008. Using the conditional tail risk factor derived by Kelly (2012), we find that tail risk is a key driver of hedge fund returns in both the time-series and cross-section. A positive one standard deviation shock to tail risk is associated with a contemporaneous decline of 2.88% per year in the value of the aggregate hedge fund portfolio. In the cross-section, funds that lose value during high tail risk episodes earn average annual returns more than 6% higher than funds that are tail risk-hedged, controlling for commonly used hedge fund factors. These results are consistent with the notion that a significant component of hedge fund returns can be viewed as compensation for selling disaster insurance.

Number of Pages in PDF File: 42

Keywords: Hedge fund, tail risk, performance evaluation

JEL Classification: G12, G20

working papers series


Download This Paper

Date posted: May 31, 2012 ; Last revised: November 20, 2012

Suggested Citation

Kelly, Bryan T. and Jiang, Hao, Tail Risk and Hedge Fund Returns (November 1, 2012). Chicago Booth Research Paper No. 12-44; Fama-Miller Working Paper. Available at SSRN: http://ssrn.com/abstract=2019482 or http://dx.doi.org/10.2139/ssrn.2019482

Contact Information

Bryan T. Kelly (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8359 (Phone)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Hao Jiang
University of Texas at Austin ( email )
FINANCE DEPARTMENT, B6600
1 University Station
Austin, 78712
United States
512-232-6758 (Phone)
HOME PAGE: http://sites.google.com/site/haojiangfinance/
Feedback to SSRN


Paper statistics
Abstract Views: 5,040
Downloads: 1,395
Download Rank: 6,423
References:  38
Citations:  3

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.313 seconds