Hedge Fund Styles and their Contagion from the Equity Market

Hee Soo Lee and Tae Yoon Kim

International Review of Finance, 2018, vol. 18, issue 1, 91-112

Abstract: We examine the dynamic contagion process of the equity market on 10 hedge fund styles. We investigate the contagion mechanism for each style using single equation error correction and latent factor models. We find that the contagion effects of the equity market on each style index depend specifically on the fund style strategy. We demonstrate that certain fund styles are more prone to contagion from the equity market than others. Our results help illuminate the relative effectiveness of a particular strategy under certain market conditions and provide insights into the long†standing controversy around the efficient market hypothesis.

Date: 2018
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