Tail Risks Across Investment Funds

Lin, Jerchern

dc.contributor.author	Lin, Jerchern
dc.date.accessioned	2025-01-29T13:29:56Z
dc.date.available	2025-01-29T13:29:56Z
dc.date.issued	2024-12-31
dc.identifier.issn	2391-6478
dc.identifier.uri	http://hdl.handle.net/11089/54442
dc.description.abstract	The purpose of the article. Managed portfolios are subject to tail risks, which can be either index level (systematic) or fund-specific. Examples of fund-specific extreme events include those due to big bets or fraud. This paper studies the two components in relation to compensation structure in managed portfolios.Methodology. A novel methodology is developed to decompose return skewness and kurtosis into various systematic and idiosyncratic components and applied it to the returns of different fund types to assess the significance of these sources. In addition, a simple model generates fund-specific tail risk and its asymmetric dependence on the market, and makes predictions for where such risks should be concentrated. The model predicts that systematic tail risks increase with an increased weight on systematic returns in compensation and idiosyncratic tail risks increase with the degree of convexity in contracts.Results of the research. The model predictions are supported with empirical results. Hedge funds are subject to higher idiosyncratic tail risks and Exchange Traded Funds exhibit higher systematic tail risks. In skewness and kurtosis decompositions, the results indicate that coskewness is an important source for fund skewness, but fund kurtosis is driven by cokurtosis, as well as volatility comovement and residual kurtosis, with the importance of these components varying across fund types. Investors are subject to different sources of skewness and fat tail risks through delegated investments. Volatility based tail risk hedging is not effective for all fund styles and types.	en
dc.language.iso	en
dc.publisher	Wydawnictwo Uniwersytetu Łódzkiego	pl
dc.relation.ispartofseries	Journal of Finance and Financial Law	en
dc.rights.uri	https://creativecommons.org/licenses/by-nc-nd/4.0
dc.subject	Tail Risk	en
dc.subject	Systematic Risk	en
dc.subject	Idiosyncratic Risk	en
dc.subject	Coskewness	en
dc.subject	Cokurtosis	en
dc.subject	Copula	en
dc.subject	Tail Dependence	en
dc.subject	ETFs	en
dc.subject	Closed-end Funds	en
dc.subject	Mutual Funds	en
dc.subject	Hedge Funds	en
dc.subject	Compensation	en
dc.title	Tail Risks Across Investment Funds	en
dc.type	Article
dc.page.number	77-143
dc.contributor.authorAffiliation	University of Illinois at Chicago	en
dc.identifier.eissn	2353-5601
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dc.contributor.authorEmail	jerchern@uic.edu
dc.identifier.doi	10.18778/2391-6478.S1.2024.05

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