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Hedge Funds and Financial Stability: An Analysis of their Factor Exposures

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  • Richard A. Brealey
  • Evi Kaplanis

Abstract

In recent years, hedge funds and other highly leveraged institutions have attracted considerable criticism and have been accused of accentuating economic crises by taking large speculative positions in emerging markets. This paper examines how much information about hedge fund exposures can be inferred from fund returns. We provide supporting evidence that factor exposures are not constant and that funds exhibit herding. However, there are important difficulties in using returns data to identify speculative portfolio shifts and we show that considerable caution is needed in drawing inferences about hedge fund activities during crisis periods.

Suggested Citation

  • Richard A. Brealey & Evi Kaplanis, 2001. "Hedge Funds and Financial Stability: An Analysis of their Factor Exposures," International Finance, Wiley Blackwell, vol. 4(2), pages 161-187.
    • Handle: RePEc:bla:intfin:v:4:y:2001:i:2:p:161-187
    DOI: 10.1111/1468-2362.00070
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    Citations

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    Cited by:

    1. Monica Billio & Mila Getmansky & Loriana Pelizzon, 2008. "Crises and Hedge Fund Risk," Yale School of Management Working Papers amz2561, Yale School of Management, revised 01 Oct 2009.
    2. Gregoriou, Greg N. & Sedzro, Komlan & Zhu, Joe, 2005. "Hedge fund performance appraisal using data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 164(2), pages 555-571, July.
    3. Billio, Monica & Getmansky, Mila & Pelizzon, Loriana, 2012. "Dynamic risk exposures in hedge funds," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3517-3532.
    4. Boyson, Nicole M. & Stahel, Christof W. & Stulz, Rene M., 2006. "Is There Hedge Fund Contagion?," Working Paper Series 2006-1, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    5. Ying Li & Hossein Kazemi, 2007. "Conditional Properties of Hedge Funds: Evidence from Daily Returns," European Financial Management, European Financial Management Association, vol. 13(2), pages 211-238, March.
    6. Wong, Wing-Keung & Phoon, Kok Fai & Lean, Hooi Hooi, 2008. "Stochastic dominance analysis of Asian hedge funds," Pacific-Basin Finance Journal, Elsevier, vol. 16(3), pages 204-223, June.
    7. Andreu, Laura & Serrano, Miguel & Vicente, Luis, 2019. "Efficiency of mutual fund managers: A slacks-based manager efficiency index," European Journal of Operational Research, Elsevier, vol. 273(3), pages 1180-1193.
    8. repec:onb:oenbwp:y:2005:i:9:b:1 is not listed on IDEAS
    9. Azman-Saini, W.N.W., 2006. "Hedge funds, exchange rates and causality: Evidence from Thailand and Malaysia," MPRA Paper 716, University Library of Munich, Germany.
    10. W. N. W. Azman-Saini & Evan Lau & Zulkefly Abdul Karim, 2010. "Hedge funds, exchange rates and causality: evidence from Thailand and Malaysia," Applied Economics Letters, Taylor & Francis Journals, vol. 17(4), pages 393-397.

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