Hedge Fund Contagion and Liquidity Shocks
Nicole M. Boyson
Northeastern University - D’Amore-McKim School of Business
Christof W. Stahel
U.S. Securities and Exchange Commission - Division of Economic and Risk Analysis
René M. Stulz
Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
January 1, 2010
Journal of Finance, Vol. 55, No. 5, pp. 1789-1816, October 2010
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 funding and asset 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.
Number of Pages in PDF File: 60
Keywords: Hedge funds, Extreme returns, Contagion, Systemic risk
JEL Classification: G11, G12, G18
Date posted: March 15, 2006 ; Last revised: December 4, 2012
© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo5 in 0.297 seconds