Survival Analysis of Hedge Funds

Naohiko Baba and Hiromichi Goko
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Naohiko Baba: Bank of Japan
Hiromichi Goko: Bank of Japan

No 06-E-5, Bank of Japan Working Paper Series from Bank of Japan

Abstract: This paper applies a survival analysis to individual hedge fund data reported in the Lipper TASS database. We use several methodologies including the non-parametric survival analysis, the Semi-parametric Cox proportional hazard analysis with shared frailty, and the logit analysis to assess the effects of both fund-specific characteristics and the dynamic performance properties on survival probabilities of hedge funds. Estimation results are summarized as follows. (i) Funds with higher returns, assets under management (AUM), and recent fund flows, and funds with lower volatilities and higher skewness of returns and AUM have higher survival probabilities. (ii) Incentive scheme matters for survival probabilities, and the directions of the effects differ depending on the measures: funds with higher incentive fees have lower survival probabilities, while those with a high water mark have higher survival probabilities. (iii) Cancellation policies as proxies for liquidity constraints matter: funds with a longer redemption notice period and a lower redemption frequency have higher survival probabilities. (iv) As the number of total hedge funds becomes larger, survival probability significantly falls. (v) On the other hand, leverage does not significantly influence survival probabilities.

Keywords: Hedge funds; High Water Mark; Incentive Fees; Survival Analysis; Panel Logit (search for similar items in EconPapers)
JEL-codes: G11 G12 G13 (search for similar items in EconPapers)
Date: 2006-03
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Citations: View citations in EconPapers (5)

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