Survival of Hedge Funds: Frailty vs Contagion

Serge Darolles (1) , Patrick Gagliardini (2) , Christian Gouriéroux (3)

1 DRM - Dauphine Recherches en Management
2 University of Lugano and Swiss Finance Institute
3 CREST - Centre de Recherche en Économie et Statistique

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.

Mots clés: Hedge Fund; Liquidation Correlation; Frailty; Contagion; Dynamic Count Model; Autoregressive Gamma Process; Systemic Risk; Stress-tests; Liquidation Swap; Funding Liquidity; Market Liquidity

Mots clés: Fonds spéculatifs; Risque; Liquidité (économie politique)

Domaines: Gestion et management

Serge Darolles, Patrick Gagliardini, Christian Gouriéroux. Survival of Hedge Funds: Frailty vs Contagion. 22nd Annual Meeting of the European Financial Management Association - EFMA 2013, Jun 2013, Reading, United Kingdom. pp.70. ⟨hal-01632897⟩