Hedge Fund Tail Risk: An Investigation
in Stressed Markets

Abstract

This article develops several risk measures that capture the tail risk of single hedge fund strategies and the tail risk contribution of these hedge fund strategies to the overall portfolio tail risk, conditional on the level of market distress. The authors show that, during the recent global financial crisis, all of the different hedge fund strategies contributed to the tail risk of the portfolio of hedge funds, mostly because of the hedge fund strategies’ exposure to liquidity and credit risk.