# kaal:claim:2748096-023

**Claim.** Strategy diversification does not insulate the hedge fund industry from systemic risk: returns across different hedge fund strategies were more correlated during the financial crisis of 2007-2008 than before it, so the industry can pose systemic risk despite investing across a broad spectrum of assets and strategies.

**Type.** failure  **Support.** evidenced

**Holds when.**

- periods of market stress
- evidence drawn from the 2007-2008 crisis

**Source quote.**

> hedge fund returns should not affect their systemic risk. However, evidence exists that the returns of different hedge fund strategies were more correlated during the financial crisis of 2007-2008 than before the crisis

**From.** Wulf A. Kaal, Timothy A. Krause, *Hedge Funds and Systemic Risk* (2016), Hedge Fund Returns and Investment Strategies, page 8

**Cite as.** Wulf A. Kaal, Timothy A. Krause, Hedge Funds and Systemic Risk (2016). SSRN: https://ssrn.com/abstract=2748096

**Verify.** sha256 of source PDF `8f30260f2c1db728b45c4f3b9b7c64358cf9d3217277bc3c63a910c32f87b508` at https://raw.githubusercontent.com/wulfkaal/Academic-Papers/main/papers/pdf/Kaal%20and%20Krause%20-%202016%20-%20Hedge%20Funds%20and%20Systemic%20Risk.pdf

**Failure mode.** diversification breakdown under stress  (family: systemic-risk-transmission)

**Topics.** systemic-risk, risk-and-incentives

**Keywords.** correlation, diversification, strategy-returns, systemic-risk

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