Failure Risk and the Cross-Section of Hedge Fund Returns

Research output: Contribution to journalArticlepeer-review

3 Scopus citations


Modeling a hedge fund's probability of failure with a dynamic logit regression, I find that the probability of a fund's failure has a significantly negative effect on the fund's future returns. A quintile portfolio with the highest failure probability underperforms a quintile portfolio with the lowest failure probability by 5% to 6% per year from 1997 to 2012. The results are robust to the definition of hedge fund failure and controlling for a large set of risk factors and fund characteristics. Moreover, the negative effect of failure probability on future fund returns is stronger for funds with weak share restrictions.

Original languageEnglish
Pages (from-to)845-876
Number of pages32
JournalFinancial Management
Issue number4
StatePublished - 1 Dec 2016


Dive into the research topics of 'Failure Risk and the Cross-Section of Hedge Fund Returns'. Together they form a unique fingerprint.

Cite this