Post by Sapphire Capital on Feb 17, 2009 20:39:37 GMT 4
Estimating Operational Risk for Hedge Funds: The Omega-Score
Stephen J. Brown
NYU Stern School of Business
William N. Goetzmann
Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)
Bing Liang
University of Massachusetts at Amherst - Department of Finance & Operations Management
Christopher Schwarz
University of California at Irvine
Financial Analysts Journal, Vol. 65, No. 1, 2009
Abstract:
Using a complete set of U.S. SEC filing information on hedge funds (Form ADV) and data from the Lipper TASS Hedge Fund Database, the study reported here developed a quantitative model called the É-score to measure hedge fund operational risk. The É-score is related to conflict-of-interest issues, concentrated ownership, and reduced leverage in the Form ADV data. With a statistical methodology, the study further related the É-score to such readily available information as fund performance, volatility, size, age, and fee structures. Finally, the study demonstrated that although operational risk is more significant than financial risk in explaining fund failure, a significant and positive interaction exists between operational risk and financial risk.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1335449
Stephen J. Brown
NYU Stern School of Business
William N. Goetzmann
Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)
Bing Liang
University of Massachusetts at Amherst - Department of Finance & Operations Management
Christopher Schwarz
University of California at Irvine
Financial Analysts Journal, Vol. 65, No. 1, 2009
Abstract:
Using a complete set of U.S. SEC filing information on hedge funds (Form ADV) and data from the Lipper TASS Hedge Fund Database, the study reported here developed a quantitative model called the É-score to measure hedge fund operational risk. The É-score is related to conflict-of-interest issues, concentrated ownership, and reduced leverage in the Form ADV data. With a statistical methodology, the study further related the É-score to such readily available information as fund performance, volatility, size, age, and fee structures. Finally, the study demonstrated that although operational risk is more significant than financial risk in explaining fund failure, a significant and positive interaction exists between operational risk and financial risk.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1335449