Abstract

http://ssrn.com/abstract=983209
 
 

References (72)



 
 

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Predicting Hedge Fund Failure: A Comparison of Risk Measures


Bing Liang


University of Massachusetts Amherst - Department of Finance

Hyuna Park


Brooklyn College - CUNY

February 2008


Abstract:     
This paper compares downside risk measures that incorporate higher return moments with traditional risk measures such as standard deviation in predicting hedge fund failure. When controlling for styles, performance, fund age, size, lockup, high-water mark, and leverage, we find that funds with larger downside risk have a higher hazard rate. However, standard deviation loses the explanatory power once the other explanatory variables are included in the hazard model. Further, we find liquidation does not necessarily mean failure in the hedge fund industry. By reexamining the attrition rate, we show that the real failure rate of 3.1% is lower than the attrition rate of 8.7% on an annual basis from the period of 1995-2004.

Number of Pages in PDF File: 46

Keywords: hedge fund failure, downside risk, expected shortfall, VaR, attrition rate

JEL Classification: G11, G12, C31


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Date posted: April 30, 2007 ; Last revised: September 11, 2009

Suggested Citation

Liang, Bing and Park, Hyuna, Predicting Hedge Fund Failure: A Comparison of Risk Measures (February 2008). Available at SSRN: http://ssrn.com/abstract=983209 or http://dx.doi.org/10.2139/ssrn.983209

Contact Information

Bing Liang (Contact Author)
University of Massachusetts Amherst - Department of Finance ( email )
Amherst, MA 01003
United States
Hyuna Park
Brooklyn College - CUNY ( email )
2900 Bedford Ave
Brooklyn, NY NY 11210
United States
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