Review of Accounting Studies

, Volume 22, Issue 3, pp 1084–1121 | Cite as

Do risk management practices work? Evidence from hedge funds

  • Gavin Cassar
  • Joseph GerakosEmail author


We examine hedge fund risk management practices and their association with left-tail risk during the 2008 financial crisis. Consistent with risk management practices reducing left-tail risk, funds in our sample that use formal risk models performed significantly better in the extreme down months of 2008. We find no evidence that having either position limits or a dedicated head of risk management is associated with reduced left-tail risk. Funds employing value at risk models had more accurate expectations of how they would perform in a short-term equity bear market.


Risk management Hedge funds Financial crisis 

JEL Classification

G11 G23 M40 



We thank The Hedge Fund Due Diligence Group at Analytical Research ( for providing the data used in this study. Previous versions of this manuscript circulated under the titles “How do hedge funds manage portfolio risk?” and ”Does risk management work?” Financial support for this project was provided by the Global Association of Risk Professionals and the Fama-Miller Center for Research in Finance at the University of Chicago Booth School of Business. We thank for their comments Aaron Brown, Alex Edmans, Douglas Cumming, Jeremiah Green, Christopher Ittner, Steve Mann, Felix Meschke, Mina Pizzini, Cathy Schrand (discussant), Christopher Schwarz, Richard Sloan (editor), Jesse Shapiro, and workshop participants from INSEAD, the University of Newcastle, the University of New South Wales, the 2010 JAAF Conference, the 2011 AAA Management Accounting Section Annual Meeting, the EFM 2011 Symposium on Alternative Investments, the 2011 Oklahoma Risk Management Conference, the 4th Annual Southwind Finance Conference at the University of Kansas, the 2011 EFMA Annual Meetings, the 2011 Oakland University Conference on Credit Risk, the 2014 Harvard IMO Conference, and the 2016 Review of Accounting Studies Conference. Elizabeth Keller provided excellent research assistance.


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Copyright information

© Springer Science+Business Media New York 2017

Authors and Affiliations

  1. 1.INSEADFontainebleauFrance
  2. 2.Tuck School of Business at Dartmouth CollegeHanoverUSA

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