Hedge fund return dependence: Model misspecification or liquidity spirals?

Richard Sias, Harry J. Turtle, Blerina Zykaj

Research output: Contribution to journalReview article

1 Scopus citations

Abstract

We test whether model misspecification or liquidity spirals primarily explain the observed excess dependence in filtered (for economic fundamentals) hedge fund index returns and the links between volatility, liquidity shocks, and hedge fund return clustering. Evidence supports the model misspecification hypothesis: I) hedge fund filtered return clustering is symmetric, ii) filtered Short Bias fund returns exhibit negative dependence with filtered returns for other hedge fund types, iii) negative liquidity shocks are associated with clustering in both tails and market volatility subsumes the role of negative liquidity shocks, and iv) these same patterns appear in size-sorted equity portfolios.

Original languageEnglish (US)
Pages (from-to)2157-2181
Number of pages25
JournalJournal of Financial and Quantitative Analysis
Volume52
Issue number5
DOIs
StatePublished - Oct 1 2017

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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