Financial Market Dislocations and Hedge Fund Returns

Abstract

This article examines hedge fund returns around two turbulent events in 1998: the Russian bond crisis and the Long Term Capital Management bailout. Although the returns to hedge funds were significantly affected by the Russian bond crisis, the evidence is mixed in the case of the Long Term Capital Management debacle. This study suggests that hedge fund returns are not merely “skill-based” but are affected by the same financial market events that affect stocks and bonds.