Value-at-risk and the cross section of emerging market hedge fund returns

Sara Ali, Ihsan Badshah and Riza Demirer

Global Finance Journal, 2022, vol. 52, issue C

Abstract: This paper examines the cross-sectional relationship between downside risk (Value at Risk) and expected returns in a sample of 1370 emerging market hedge funds (EMHF). We find that downside risk significantly drives expected returns for these funds, particularly before the global financial crisis, commanding an annual risk premium of over 12%. While EMHF differ from their advanced market counterparts in risk/return patterns, we show that the global financial crisis of 2008 has caused a structural shift in that pattern. Finally, we show that the risk premium associated with downside risk is predictable by the global financial cycle, even after we control for emerging market systematic risk factors.

Keywords: Cross-section of expected returns; Emerging markets, hedge fund; Value at risk; Global financial cycle (search for similar items in EconPapers)
JEL-codes: G10 G11 G13 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:52:y:2022:i:c:s1044028321000910

DOI: 10.1016/j.gfj.2021.100693

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