Reducing Stock Risk with Hedge Funds

8 Pages Posted: 24 Jan 2016

Date Written: January 23, 2016

Abstract

This paper tests the risk reduction properties of hedge fund investing against a sample of stocks ranging from 1990 through 2014. GARCH dynamic conditional correlation analysis indicates that hedge funds are a significant diversifier due to the consistent imperfect relationship between the hedge fund returns and the stock return indexes. Hedge funds serve as a weak safe haven in times of extreme stock market volatility. During periods of financial crisis, hedge funds also largely function as a weak safe haven. In contrast to their name, hedge funds do not provide a traditional “hedge” against stock risk.

Keywords: Time-varying correlation, hedge fund, hedge, safe haven

Suggested Citation

Ratner, Mitchell and Chiu, Chih-Chieh (Jason), Reducing Stock Risk with Hedge Funds (January 23, 2016). Available at SSRN: https://ssrn.com/abstract=2721083 or http://dx.doi.org/10.2139/ssrn.2721083

Mitchell Ratner (Contact Author)

Rider University ( email )

2083 Lawrenceville Road
Lawrenceville Township, NJ 08648
United States

Chih-Chieh (Jason) Chiu

Rider University ( email )

2083 Lawrenceville Road
Lawrenceville Township, NJ 08648
United States

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