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Measuring Risk in the Hedge Fund Sector

7 Pages Posted: 27 Sep 2007  

Tobias Adrian

International Monetary Fund


Recent high correlations among hedge fund returns could suggest concentrations of risk comparable to those preceding the hedge fund crisis of 1998. A comparison of the current rise in correlations with the elevation before the 1998 event, however, reveals a key difference. The current increase stems mainly from a decline in the volatility of returns, while the earlier rise was driven by high covariances - an alternative measure of comovement in dollar terms. Because volatility and covariances are lower today, the current hedge fund environment differs from the 1998 environment.

Keywords: hedge funds, systemic risk, LTCM crisis

JEL Classification: G0, G1, G2, G3

Suggested Citation

Adrian, Tobias, Measuring Risk in the Hedge Fund Sector. Current Issues in Economics and Finance, Vol. 13, No. 3, March/April 2007. Available at SSRN:

Tobias Adrian (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States


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