Survival of Hedge Funds: Frailty vs Contagion

Serge Darolles, Patrick Gagliardini () and Christian Gourieroux

No 2012-36, Working Papers from Center for Research in Economics and Statistics

Abstract: In this paper we examine the dependence between the liquidation risks of individual hedge funds. This dependence can result either from common exogenous shocks (shared frailty), or from contagion phenomena, which occur when an endogenous behaviour of a fund manager impacts the Net Asset Values of other funds. We introduce dynamic models able to distinguish between frailty and contagion phenomena, and test for the presence of such dependence effects, according to the age and management style of the fund. We demonstrate the empirical relevance of our approach by measuring the magnitudes of contagion and exogenous frailty in liquidation risk dependence in the TASS database. The empirical analysis is completed by stress-tests on portfolios of hedge funds.

Keywords: Hedge Fund; Liquidation Correlation; Frailty; Contagion; Dynamic Count Model; Autoregressive Gamma Process; Systemic Risk; Stress-tests; Liquidation Swap; Funding Liquidity; Market Liquidity. (search for similar items in EconPapers)
JEL-codes: C23 G12 (search for similar items in EconPapers)
Pages: 81
Date: 2012-11
New Economics Papers: this item is included in nep-fmk and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Survival of Hedge Funds: Frailty vs Contagion (2013)
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