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Dynamic prediction of hedge fund survival in crisis-prone financial markets

Hee Soo Lee and Tae Yoon Kim

Journal of Banking & Finance, 2014, vol. 39, issue C, 57-67

Abstract: This study focuses on dynamic changes in survival probabilities over the lifetimes of hedge funds. To model such probabilities, a mixed Cox proportional hazards (CPH) model-specifically, a survival/hazard model with time-varying covariates and fixed covariates- is employed. Resulting dynamic survival probabilities show that the mixed CPH model provides significantly higher accuracy in predicting hedge fund failure than other models in the literature, including fixed covariate CPH models and discrete logit models. Our results are useful to investors and regulators of hedge funds in crisis-prone financial markets.

Keywords: Hedge fund failure; Mixed Cox proportional hazards model; Time-varying covariates; Survival probability prediction; Crisis-prone financial markets (search for similar items in EconPapers)
JEL-codes: G33 G14 G17 (search for similar items in EconPapers)
Date: 2014
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Handle: RePEc:eee:jbfina:v:39:y:2014:i:c:p:57-67