A0892
Title: Hedge funds systemic risks: Which factors matter?
Authors: Philippe Hubner - HEC Liege, University of Liege (Belgium) [presenting]
Julien Hambuckers - University of Liege (Belgium)
Abstract: An extreme value systemic risk model is extended to a regression context, where a set of covariates drives marginal tail indices of hedge funds and banks. As such, systemic risk contributions of hedge funds to the banking sector are allowed to be time-varying and fund-specific. Moreover, this formulation makes it possible to estimate these contributions by exploiting pooled time series of hedge funds returns, overcoming the short reporting periods in commercial databases. Then funds characteristics and market conditions indicate a high systemic threat, information of interest for regulators. Using a sample of around 5,000 funds, it is found that the systemic risk contribution of hedge funds increased after the 2008 crisis for all strategies, mainly driven by the increasing individual size of funds. Moreover, the investment strategy is found to be a determinant factor in explaining systemic risk intensity. In particular, Fixed Income hedge funds are found to be the highest systemic risk contributors. Finally, hedge funds' systemic risk is revealed to increase during periods of high uncertainty despite a contemporaneous decrease in extremal dependence on the banking sector.
