When There Is No Place to Hide: Correlation Risk and the Cross-Section of Hedge Fund Returns
Using a novel data set on correlation swaps, we study the relation between correlation risk, hedge fund characteristics, and their risk-return profile. We find that the ability of hedge funds to create market-neutral returns is often associated with a significant exposure to correlation risk, which...
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| Veröffentlicht in: | The Review of financial studies 2014-02, Vol.27 (2), p.581-616 |
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| container_end_page | 616 |
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| container_issue | 2 |
| container_start_page | 581 |
| container_title | The Review of financial studies |
| container_volume | 27 |
| creator | Buraschi, Andrea Kosowski, Robert Trojani, Fabio |
| description | Using a novel data set on correlation swaps, we study the relation between correlation risk, hedge fund characteristics, and their risk-return profile. We find that the ability of hedge funds to create market-neutral returns is often associated with a significant exposure to correlation risk, which helps to explain the large abnormal returns found in previous models. We also estimate a significant negative market price of correlation risk, which accounts for the cross-section of hedge fund excess returns. Finally, we detect a pronounced nonlinear relation between correlation risk exposure and the tail risk of hedge fund returns. |
| doi_str_mv | 10.1093/rfs/hht070 |
| format | Article |
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| ispartof | The Review of financial studies, 2014-02, Vol.27 (2), p.581-616 |
| issn | 0893-9454 1465-7368 |
| language | eng |
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| source | Business Source Complete; JSTOR Archive Collection A-Z Listing; Oxford University Press Journals All Titles (1996-Current) |
| subjects | Abnormal returns Correlation Correlation analysis Correlations Cross-sectional analysis Estimation Financial analysis Financial portfolios Hedge funds Investment funds Investment risk Investment strategies Market prices Mathematical models Predisposing factors Risk Risk exposure Risk premiums Statistical variance Studies Systematic risk |
| title | When There Is No Place to Hide: Correlation Risk and the Cross-Section of Hedge Fund Returns |
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