Hedge fund managers are subject to several non-linear incentives: (a) performance fee options (call); (b) equity investor's redemption options (put); (c) prime broker contracts allowing for forced deleverage (put). The interaction of these option-like incentives affects optimal leverage ex-ante,...

Hedge fund managers are subject to several non-linear incentives: (a) performance fee options (call); (b) equity investor's redemption options (put); (c) prime broker contracts allowing for forced deleverage (put). The interaction of these option-like incentives affects optimal leverage ex-ante,...

This article analyzes the effect of liquidity risk on the performance of various hedge fund portfolio strategies. Similarly to Avramov et al. (2007), we find that, before accounting for the effect of liquidity risk, hedge fund portfolios that incorporate predictability in managerial skills...

This study has 4 contributions to the literature. First, the authors analyze the risk characteristics for 11 Relative Value hedge fund strategies. Second, the authors introduce 3 families of behavioral factors, the D family, the L family, and the R family. In contrast to previous hedge fund...

We analyse the evolution of the hedge fund industry and try to assess whether this alternative investment class makes sense over the traditional one. We are concerned with the impact of the crisis. Common sense tells us that that during phases of market euphoria, possibly due to over-optimism,...

We develop a new tail risk measure for hedge funds to examine the impact of tail risk on fund performance and to identify the sources of tail risk. We find that tail risk affects the cross-sectional variation in fund returns, and investments in both, tailsensitive stocks as well as options,...

We develop a new systematic tail risk measure for equity-oriented hedge funds to examine the impact of tail risk on fund performance and to identify the sources of tail risk. We find that tail risk affects the cross-sectional variation in fund returns, and investments in both, tail-sensitive...

Market liquidity is complex to measure empirically. This explains why there is no consensus about performance ratios adjusted to its risk. We summarize market liquidity by two major characteristics: a costly one because of the loss of illiquidity premium; and a profitable one when investors can...

This research examines hedge funds’ performance, risk, and flow before and after the implementation of the Stop Trading on Congressional Knowledge (STOCK) Act. This study finds significant differences before and after the implementation of the STOCK Act. The results for the entire sample...

Using a novel dataset on correlation swaps, we study the relation between correlation risk, hedge fund characteristics and their risk-return profile. We find that hedge funds' ability to create market neutral returns is often associated with a significant exposure to correlation risk, which...