Survival of Hedge Funds: Frailty vs Contagion

Serge Darolles, Patrick Gagliardini () and Christian Gouriéroux
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Christian Gouriéroux: CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique

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Abstract: In this paper we examine the dependence between the liquidation risks of individual hedge funds. This dependence can result either from common exogenous shocks (shared frailty), or from contagion phenomena, which occur when an endogenous behaviour of a fund manager impacts the Net Asset Values of other funds. We introduce dynamic models able to distinguish between frailty and contagion phenomena, and test for the presence of such dependence effects, according to the age and management style of the fund. We demonstrate the empirical relevance of our approach by measuring the magnitudes of contagion and exogenous frailty in liquidation risk dependence in the TASS database. The empirical analysis is completed by stress-tests on portfolios of hedge funds.

Keywords: Hedge Fund; Liquidation Correlation; Frailty; Contagion; Dynamic Count Model; Autoregressive Gamma Process; Systemic Risk; Stress-tests; Liquidation Swap; Funding Liquidity; Market Liquidity; Fonds spéculatifs; Risque; Liquidité (économie politique) (search for similar items in EconPapers)
Date: 2013-06
Note: View the original document on HAL open archive server: https://hal.science/hal-01632897v1
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Citations: View citations in EconPapers (2)

Published in 22nd Annual Meeting of the European Financial Management Association - EFMA 2013, Jun 2013, Reading, United Kingdom. pp.70

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Related works:
Working Paper: Survival of Hedge Funds: Frailty vs Contagion (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01632897

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