n Investment Analysts Journal - Evaluating and predicting the failure probabilities of hedge funds
|Article Title||Evaluating and predicting the failure probabilities of hedge funds|
|© Publisher:||Taylor & Francis|
|Journal||Investment Analysts Journal|
|Affiliations||1 Yonsei University, Korea and 2 The University of Sydney, Australia|
|Publication Date||Jan 2015|
|Pages||134 - 150|
|Keyword(s)||Failure probability, Hedge funds, Logistic model, Proportional hazard model, ROC curve and Signal detection model|
ISI Social Science
Hedge funds have the most sophisticated risk management practices; however, they also appear to have a short lifetime relative to other managed funds. In this study we investigate the failure probabilities of hedge funds - particularly the failures due to financial distress. We forecast the failure probabilities of hedge funds using both a proportional hazard model and a logistic model. By utilising a signal detection model and a relative operating characteristic curve as the prediction accuracy metrics, we found that both models have predictive power in the out-of-sample test. The proportional hazard model, in particular, has stronger predictive power, on average.
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