Hedge Fund Tail Risk
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.
Brunnermeier acknowledges financial support from the Guggenheim Foundation, INQUIRE European Research Grant, Wim Duisenberg School, Center for Investor Education, Bank of Korea, Ambrosetti House of Europe and FEBRABAN.
Markus K. Brunnermeier
Disclosure of Interest
As a guiding principle I follow the NBER Research Disclosure Policy: http://www.nber.org/researchdisclosurepolicy.html
To date, no single relationship (other than my salary form Princeton University) has accounted for more than 10 percent of my aggregate annual income in that year.
Significant Remunerated Activities:
Speaking engagements and lectures
-- Stifterverband der Deutschen Wirtschaft, 2012
-- Ambrosetti – The European House, 2011
-- Center for Investor Education, 2011
-- Wim Duisenberg School of Finance, 2010
-- Handelsbanken, 2010
-- Deutsche Bank, 2010
-- FEBRABAN, Brazil, 2009
ECB, ESRB, Bank of England, National Bank of Austria, Swiss National Bank, Bank of Japan, Federal Reserve, New York Fed, Bank of Canada, Bank of Chile, Bank of Korea,
International financial institution
No expert testimony for law suits or paid consulting work for private cooperation to date.
- Sloan Foundation 2011-12
- Guggenheim Fellowship, 2010-11
- University of Chicago, T.W. Schultz Prize and Lecture, 2010
- INQUIRE Europe, Research Grant
Visiting Scholar and Other:
- Milton Friedman Institute, visiting scholar 2011
- American Economic Review, Journal of Finance, Associated Editorship
Significant Non-Compensated Activities:
- American Finance Association: Director
- Financial Advisory Roundtable and Monetary Policy Panel, Federal Reserve Bank of New York, 2006 – present
- INET Advisory Board Member, 2009 – present