kaal:claim:2748096-034

Traditional risk-adjusted alphas underestimate hedge fund risk: once correlation risk is controlled for, previously observed significant hedge fund alphas disappear, which makes correlation risk a systematic risk factor for hedge fund returns.

Source quote, verbatim

This finding is important because traditional risk-adjusted alphas may underestimate hedge fund risk.

From

Wulf A. Kaal, Timothy A. Krause, Hedge Funds and Systemic Risk (2016), POST-CRISIS EVIDENCE ON THE SYSTEMIC RISK OF HEDGE FUNDS, p. 16
https://ssrn.com/abstract=2748096 · source PDF

Cite as

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

Holds when

cross-sectional analysis of individual hedge fund returns

Classification

failuresupport: evidencedfailure: alpha overstatement from omitted correlation riskfamily: measurement-and-metric-failurerisk-and-incentivesresearch-methods

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