Journal Article

Measuring risk in the hedge fund sector

Abstract: Recent high correlations among hedge fund returns could suggest concentrations of risk comparable to those preceding the hedge fund crisis of 1998. A comparison of the current rise in correlations with the elevation before the 1998 event, however, reveals a key difference. The current increase stems mainly from a decline in the volatility of returns, while the earlier rise was driven by high covariances - an alternative measure of comovement in dollar terms. Because volatility and covariances are lower today, the current hedge fund environment differs from the 1998 environment.>

Keywords: Corporations - Finance; Financial institutions; Hedge funds; Rate of return;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Current Issues in Economics and Finance

Publication Date: 2007

Volume: 13

Issue: Mar

Order Number: 3