Tail risk in the hedge fund industry

• Ano de defesa: 2015
• Autor(a) principal: Santos, Eduardo Alonso Marza dos
• Orientador(a): Fernandes, Marcelo
• Tipo de documento: Dissertação
• Tipo de acesso: Acesso aberto
• Idioma: eng
• Palavras-chave em Português: Risco de cauda; Modelos multifatoriais; Banco de desenvolvimento; Investimento setorial
• Palavras-chave em Inglês: Tail risk; Extreme value theory; Hedge funds; Multifactor models
• Link de acesso: http://hdl.handle.net/10438/13797

The dissertation goal is to quantify the tail risk premium embedded into hedge funds' returns. Tail risk is the probability of extreme large losses. Although it is a rare event, asset pricing theory suggests that investors demand compensation for holding assets sensitive to extreme market downturns. By de nition, such events have a small likelihood to be represented in the sample, what poses a challenge to estimate the e ects of tail risk by means of traditional approaches such as VaR. The results show that it is not su cient to account for the tail risk stemming from equities markets. Active portfolio management employed by hedge funds demand a speci c measure to estimate and control tail risk. Our proposed factor lls that void inasmuch it presents explanatory power both over the time series as well as the cross-section of funds' returns.