Dynamic Linkages between Hedge Funds and Traditional Financial Assets: Evidence from Emerging Markets

Risk Management in Emerging Markets: Issues, Framework and Modeling (Sabri Boubaker, Bonnie G. Buchanan, and Duc Khuong Nguyen (eds.)), Emerald Group Publishing, Chapter 17, 541-581.

41 Pages Posted: 25 Mar 2008 Last revised: 15 Jul 2017

See all articles by Roland Füss

Roland Füss

University of St. Gallen - School of Finance

Dieter G. Kaiser

Robus Capital Management Limited; Frankfurt School of Finance & Management

Felix Schindler

Steinbeis University Berlin - Center for Real Estate Studies; ZEW – Leibniz Centre for European Economic Research - International Finance and Financial Management

Date Written: March 1, 2016

Abstract

This paper analyses the short- and long-term relationships between hedge funds and traditional financial assets using multivariate cointegration analysis in order to investigate if the fees charged by hedge funds are justified for the kind of exposure they provide to investors. We therefore create an emerging market composite hedge fund index as well as region specific indices based upon a unique and large sample of 404 emerging market hedge funds obtained from the merger of two different databases. As to whether diversification benefits arise from adding emerging markets hedge funds to an emerging markets bond/equity portfolio, our results show that the advantages are significantly less for Eastern Europe than for the other emerging market regions of Asia and Latin America during the period January 1998 through May 2006. In summary, we find evidence that emerging market hedge funds in general are redundant securities for long-term investment horizons.

Keywords: Emerging markets, Asia, Latin America, Eastern Europe, hedge funds, Johansen cointegration test, asset allocation, portfolio diversification

JEL Classification: C32, G11, G15

Suggested Citation

Füss, Roland and Kaiser, Dieter G. and Schindler, Felix, Dynamic Linkages between Hedge Funds and Traditional Financial Assets: Evidence from Emerging Markets (March 1, 2016). Risk Management in Emerging Markets: Issues, Framework and Modeling (Sabri Boubaker, Bonnie G. Buchanan, and Duc Khuong Nguyen (eds.)), Emerald Group Publishing, Chapter 17, 541-581.. Available at SSRN: https://ssrn.com/abstract=1112247 or http://dx.doi.org/10.2139/ssrn.1112247

Roland Füss (Contact Author)

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland
+41 (0)71 224 70 42 (Phone)
+41 (0)71 224 70 88 (Fax)

HOME PAGE: http://www.sbf.unisg.ch/en/Lehrstuehle/Lehrstuhl_Fuess.aspx

Dieter G. Kaiser

Robus Capital Management Limited ( email )

25 Macklin Street
London, WC2B 5NN
United Kingdom
+496172-6816752 (Phone)

HOME PAGE: http://www.frankfurt-school.de/content/en/cpqf/team/Kaiser.html

Frankfurt School of Finance & Management ( email )

Sonnemannstra?e 9-11
Frankfurt am Main, 60314
Germany

Felix Schindler

Steinbeis University Berlin - Center for Real Estate Studies ( email )

Berlin
Germany

ZEW – Leibniz Centre for European Economic Research - International Finance and Financial Management ( email )

Postfach 103443
Mannheim, D-68034
Germany

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