Working Paper: NBER ID: w12090
Authors: Nicole M. Boyson; Christof W. Stahel; Ren M. Stulz
Abstract: We examine whether hedge funds experience contagion. First, we consider whether extreme movements in equity, fixed income, and currency markets are contagious to hedge funds. Second, we investigate whether extreme adverse returns in one hedge fund style are contagious to other hedge fund styles. To conduct this examination, we estimate binomial and multinomial logit models of contagion using daily returns on hedge fund style indices as well as monthly returns on indices with a longer history. Our main finding is that there is no evidence of contagion from equity, fixed income, and foreign exchange markets to hedge funds, except for weak evidence of contagion for one single daily hedge fund style index. By contrast, we find strong evidence of contagion across hedge fund styles, so that hedge fund styles tend to have poor coincident returns.
Keywords: No keywords provided
JEL Codes: G11; G12; G18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Extreme negative returns in one hedge fund style (G11) | Extreme negative returns in other hedge fund styles (G19) |
| Extreme negative returns in one hedge fund style (G11) | Contagion among hedge fund styles (C92) |
| Equity, fixed income, and foreign exchange markets (G15) | Hedge funds (G23) |