Hedge Funds: A study of factors and risks that influence the return during the financial crisis 2008

Abstract: The purpose of this thesis is to analyse what drives the Swedish hedge fund returns and how the funds perform during volatile times. We use Fung & Hsieh Asset Based explanatory variables and estimate seven models for Swedish hedge funds return during period 2005-2007. Further, we estimate seven new models in order to test for parameter stability over the initial stages of the sub-prime crisis during 2008. The result showed that the estimated models predict the returns to be less volatile than the actual returns were in 2008. Our explanatory factors give a fairly good picture of what happened and we conclude that four of the seven models proved to be the same model in both period.