When There Is No Place to Hide: Correlation Risk and the Cross-Section of Hedge Fund Returns

• 成果类型: Article
• 署名作者: Buraschi, Andrea; Kosowski, Robert; Trojani, Fabio
• 署名单位: Imperial College London; University of Oxford; Universita della Svizzera Italiana; Swiss Finance Institute (SFI)
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hht070
• 发表日期: 2014
• 页码: 581
• 关键词: strategies; price

摘要

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.