Dynamic risk exposures in hedge funds

Monica Billio, Mila Getmansky and Loriana Pelizzon ()

Computational Statistics & Data Analysis, 2012, vol. 56, issue 11, 3517-3532

Abstract: A regime-switching beta model is proposed to measure dynamic risk exposures of hedge funds to various risk factors during different market volatility conditions. Hedge fund exposures strongly depend on whether the equity market (S&P 500) is in the up, down, or tranquil regime. In the down-state of the market, when market volatility is high and returns are very low, S&P 500, Small–Large, Credit Spread, and VIX are common risk factors for most of the hedge fund strategies. This suggests that hedge fund exposures to the market, liquidity, credit, and volatility risks change depending on market conditions, and these risks are potentially common factors for the hedge fund industry in the down-state of the market.

Keywords: Hedge funds; Regime-switching models; Risk management; Liquidity; Financial crises (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (32)

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Related works:
Working Paper: Dynamic Risk Exposure in Hedge Funds (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:csdana:v:56:y:2012:i:11:p:3517-3532

DOI: 10.1016/j.csda.2010.08.015

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