51 Pages Posted: 9 Dec 2010 Last revised: 16 Dec 2016
Date Written: December 15, 2016
We examine hedge fund risk management practices and their association with left-tail risk during the 2008 financial crisis. Consistent with risk management practices reducing left-tail risk, funds in our sample that use formal risk models performed significantly better in the extreme down months of 2008. We find no evidence that having either a dedicated head of risk management or position limits are associated with reduced left-tail risk. Funds employing value at risk models had more accurate expectations of how they would perform in a short-term equity bear market.
Keywords: hedge funds, risk management, expectations, performance
Suggested Citation: Suggested Citation
Cassar, Gavin and Gerakos, Joseph J., Do Risk Management Practices Work? Evidence from Hedge Funds (December 15, 2016). Chicago Booth Research Paper No. 13-13; Fama-Miller Working Paper; 26th Australasian Finance and Banking Conference 2013. Available at SSRN: https://ssrn.com/abstract=1722250 or http://dx.doi.org/10.2139/ssrn.1722250