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Commonality in hedge fund returns: Driving factors and implications

Matthieu Bussiere (), Marie Hoerova () and Benjamin Klaus ()

Journal of Banking & Finance, 2015, vol. 54, issue C, 266-280

Abstract: We measure the commonality in hedge fund returns, identify its main driving factor and analyze its implications for financial stability. We find that hedge funds’ commonality increased significantly from 2003 until 2006. We attribute this rise mainly to the increase in hedge funds’ exposure to emerging market equities, which we identify as a common factor in hedge fund returns over this period. Our results show that funds with a high commonality were affected disproportionately by illiquidity and exhibited negative returns during the subsequent financial crisis, thereby providing little diversification benefits to the financial system and to investors.

Keywords: Hedge funds; Commonality; Risk factors; Liquidity; Financial crisis (search for similar items in EconPapers)
JEL-codes: G01 G10 G11 G23 (search for similar items in EconPapers)
Date: 2015
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Related works:
Working Paper: Commonality in hedge fund returns: driving factors and implications (2014) Downloads
Working Paper: Commonality in hedge fund returns: driving factors and implications (2012) Downloads
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