Funds of hedge funds: Are they really the high society for little guys?

Wei Cui and Juan Yao

International Review of Economics & Finance, 2020, vol. 67, issue C, 346-361

Abstract: Funds of hedge funds (FOFs) have been depicted as a type of conservative vehicle to many institutional and retail investors for accessing hedge fund investment. We challenge this view by investigating the role of tail risk exposure in FOFs. We find that the tail risk exposure determines a fund’s return and significantly influences a fund’s performance over one to three-month horizon. In particular, we find that the marginal extreme losses to one unit change of tail risk exposure in bear markets nearly double the marginal extreme gains in bull markets. This non-linear payoff structure must be evaluated carefully by anyone who wishes to invest in FOFs.

Keywords: Fund of hedge funds; Hedge funds; Tail risk (search for similar items in EconPapers)
JEL-codes: G01 G11 G15 G23 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056020300411
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:67:y:2020:i:c:p:346-361

DOI: 10.1016/j.iref.2020.02.004

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().