23 Pages Posted: 10 Sep 2013
Date Written: January 2008
Using a complete set of the SEC filing information on hedge funds (Form ADV) and the TASS data, we develop a quantitative model called the ω-Score to measure hedge fund operational risk. The ω-Score is related to conflict of interest issues, concentrated ownership, and reduced leverage in the ADV data. With a statistical methodology, we further relate the ω-Score to readily available information such as fund performance, volatility, size, age, and fee structures. Finally, we demonstrate that this risk score can be used to effectively predict fund failures in the future.
Suggested Citation: Suggested Citation
Brown, Stephen and Goetzmann, William N. and Liang, Bing and Schwarz, Christopher, Estimating Operational Risk for Hedge Funds: The Ω-Score (January 2008). NYU Working Paper No. 2451/27845. Available at SSRN: https://ssrn.com/abstract=2323448
By Bing Liang