NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Hoai-Luu Nguyen

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Working Papers and Chapters

November 2011Hedge Fund Tail Risk
with Tobias Adrian, Markus K. Brunnermeier
in Quantifying Systemic Risk, Joseph G. Haubrich and Andrew W. Lo, editors
This chapter uses quantile regressions to examine the interdependencies between different hedge fund styles in times of crisis. It shows that tail sensitivities between different strategies are higher in times of distress, suggesting the potential for simultaneous losses across many hedge funds; identifies seven risk factors related to these tail dependencies; and shows that offloading this risk significantly reduces the sensitivities. However, consistent with existing literature, it is also shown that these factors explain a large part of hedge funds' expected returns. The chapter provides evidence suggesting that capital flows across strategies and over time reward those which load more heavily on the tail risk factors.

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