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  • Hedge Fund Contagion and Li...
    BOYSON, NICOLE M.; STAHEL, CHRISTOF W.; STULZ, RENÉ M.

    The Journal of finance (New York), October 2010, Volume: 65, Issue: 5
    Journal Article

    Defining contagion as correlation over and above that expected from economic fundamentals, we find strong evidence of worst return contagion across hedge fund styles for 1990 to 2008. Large adverse shocks to asset and hedge fund liquidity strongly increase the probability of contagion. Specifically, large adverse shocks to credit spreads, the TED spread, prime broker and bank stock prices, stock market liquidity, and hedge fund flows are associated with a significant increase in the probability of hedge fund contagion. While shocks to liquidity are important determinants of performance, these shocks are not captured by commonly used models of hedge fund returns.