An identification [of] the sources of risk in hedge funds

Abstract

This paper identifies several sources of risk in hedge funds. Historical data are collected from January 1st, 2004 to January 1st, 2013. We employ multivariate regression model to analyze the relationship between the overall hedge fund performance indices and the ten identified sources of risk. We construct model by fitting all the variables, and then improve it based on Akaike Information Criterion (AIC) by using a stepwise algorithm. Our results indicate that the sources of equity risk, interest rate risk, emerging market risk, and macroeconomics risk are critical risk sources in the hedge fund performance modeling.