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Does Risk Management Work?

Gavin Cassar


Joseph J. Gerakos

Tuck School of Business at Dartmouth College

February 4, 2013

Chicago Booth Research Paper No. 13-13
26th Australasian Finance and Banking Conference 2013
Fama-Miller Working Paper

Although there has been substantial growth in the use of formal risk management systems, there is minimal empirical evidence of their benefits. To evaluate the effectiveness of risk management, we investigate the methods that hedge funds use to manage risk and their performance outcomes. Consistent with risk management practices reducing left-tail risk, funds in our sample that use formal models performed significantly better in the extreme down months of 2008. We find no evidence that having a dedicated head of risk management is associated with reduced left-tail risk. Funds employing VaR had more accurate expectations of how they would perform in a short-term equity bear market.

Number of Pages in PDF File: 101

Keywords: hedge funds, risk management, expectations, performance

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Date posted: December 9, 2010 ; Last revised: December 26, 2013

Suggested Citation

Cassar, Gavin and Gerakos, Joseph J., Does Risk Management Work? (February 4, 2013). Chicago Booth Research Paper No. 13-13; 26th Australasian Finance and Banking Conference 2013; Fama-Miller Working Paper. Available at SSRN: https://ssrn.com/abstract=1722250 or http://dx.doi.org/10.2139/ssrn.1722250

Contact Information

Gavin Cassar (Contact Author)
INSEAD ( email )
Boulevard de Constance
77305 Fontainebleau Cedex
HOME PAGE: http://www.insead.edu/facultyresearch/faculty/profiles/gcassar/

Joseph J. Gerakos
Tuck School of Business at Dartmouth College ( email )
Hanover, NH 03755
United States
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