Is There Hedge Fund Contagion?

Nicole M. Boyson, Christof W. Stahel and René M. Stulz

No 12090, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G11 G12 G18 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-dcm, nep-fin, nep-fmk and nep-rmg
Date: 2006-03
Note: AP CF
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