How did hedge funds macro strategies performed in times of crisis and can those performances be explained by an exposition to tail risk?

Details

Supervisors

Iania, Leonardo

Faculty

Louvain School of Management

Degree label

Master [120] : ingénieur de gestion, à finalité spécialisée

Abstract

Hedge Funds performances are of interest to investors who seek to generate returns over passive strategies, especially in times of crisis. In order to check to what extent this statement is correct, we studied the performance of macro hedge funds strategies over the last 17 years (Jan 2005 - Apr 2022) and during 4 different crises in this period: the 2008 financial crisis, the sovereign debt crisis, the Covid-19 crisis and the Ukrainian crisis. We evaluated their performances with the Sharpe ratio, the Gain-to-Pain ratio, the information ratio, the Treynor ratio, the Capital Asset Pricing Model, the Carharts model and the Fung and Hsieh model. We then wanted to see whether the results we got from those performance measures could be explained through an exposition to a tail risk factor. In order to do so, we reproduced the tail risk factor proposed by Kelly and Jiang (2012). We found that Hedge funds do bring an interesting investment opportunity especially in times of crisis. However, based on this factor, we could not establish a clear connection between the performance during crisis and exposition to tail risk.