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Dynamic prediction of hedge fund survival in crisis-prone financial markets |
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| Affiliation: | 1. Research Institute for Industrial Technology, Aichi Institute of Technology, Yakusa-cho, Toyota 470-0392, Japan;2. Faculty of Electrical and Computer Engineering, Institute of Science and Engineering, Kanazawa University, Kanazawa 920-1192, Japan;3. Graduate School of Engineering, University of Hyogo, 2167, Shosha, Himeji 671-2280, Japan;4. YUMEX Inc., Itota 400, Yumesaki-cho, Himeji 671-2114, Japan;5. Interaction Research Center for Nuclear Materials Science, Tohoku University, 2145-2, Narita-cho, Oarai-machi, Higashiibaraki-gun, Ibaraki 311-1313, Japan |
| Abstract: | This study focuses on dynamic changes in survival probabilities over the lifetimes of hedge funds. To model such probabilities, a mixed Cox proportional hazards (CPH) model-specifically, a survival/hazard model with time-varying covariates and fixed covariates- is employed. Resulting dynamic survival probabilities show that the mixed CPH model provides significantly higher accuracy in predicting hedge fund failure than other models in the literature, including fixed covariate CPH models and discrete logit models. Our results are useful to investors and regulators of hedge funds in crisis-prone financial markets. |
| Keywords: | Hedge fund failure Mixed Cox proportional hazards model Time-varying covariates Survival probability prediction Crisis-prone financial markets |
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