Hedge funds risk and connectedness

Christian Manicaro () and Joseph Falzon ()
Additional contact information
Christian Manicaro: University of Malta
Joseph Falzon: University of Malta

Journal of Asset Management, 2017, vol. 18, issue 4, No 4, 295-316

Abstract: Abstract This paper focused on measuring the volatility spillovers and parametric Value-at-Risk (VaR) models for hedge fund strategies. In reference to the first, a volatility spillover index was created to measure the connectedness and relationships between strategies. Results suggest that during periods of distress, volatility spillovers tend to increase across strategies. Equity-Hedge and Event-Driven strategies seem to be the most connected, while the Equity-Market-Neutral strategy exhibits the least connectedness with other strategies. With regard the second, unconditional and conditional parametric VaR models under Gaussian and t-distributions were measured. In general, conditional GARCH-type models outperform their unconditional counterparts, particularly at the onset of the recent financial crisis. This suggests that GARCH-type VaRs are better in protecting against downside risk. Moreover, conditional Gaussian models are more suitable for mild periods, while those under the t-distribution effectively capture risk in extremely volatile period. Finally, to unravel the connection between the two measures, common hits between hedge fund strategies were examined. The results validate the results of the volatility spillover index.

Keywords: Hedge funds; volatility spillovers; parametric value-at-risk; GARCH modelling (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1057/s41260-016-0025-4 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:pal:assmgt:v:18:y:2017:i:4:d:10.1057_s41260-016-0025-4

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/41260

DOI: 10.1057/s41260-016-0025-4

Access Statistics for this article

Journal of Asset Management is currently edited by Marielle de Jong and Dan diBartolomeo

More articles in Journal of Asset Management from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().