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I am looking for a paper related to hedge fund tail risks (think skewness and kurtosis), decomposition of the tail risks into several components and their interactions with each other, other funds, and market. When you own a fund of hedge funds, you are interested in tail risks of the hedge funds and their interactions with each other. Does anyone know of paper with this topic?

Thank you.

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I recommend you to read a quite current paper in the Journal of Financial Economics which mainly covers the analysis of tail risks (and references to papers which focus on its decomposition):

Agarwal/Ruenzi/Weigert (2017): Tail risk in hedge funds: A unique view from portfolio holdings

They mainly analyze

[...] if tail risk explains the cross-sectional and time-series variation in equity-oriented hedge fund performance and if tail risk in hedge funds arises from their dynamic trading strategies and/or their investments in stocks that are sensitive to equity market crashes.

In summary, they conclude:

Our results therefore suggest that both, funds’ investments in stocks with high tail risk as well as their dynamic trading strategies, contribute to the tail risk.

The clearly and precise written paper also offers you an extensive reference for further papers you are looking for.

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  • $\begingroup$ I finished reading the paper and it seems interesting. One practical concern is that you may not have enough data points to estimate expected shortfall. For example, a fund might be new so it has only 15-20 monthly returns. In that case, how would you go about analyzing their tail risk? $\endgroup$
    – JungleDiff
    Commented Jan 7, 2019 at 19:45
  • $\begingroup$ As an empirical researcher i can only state that a minimum of observation is commonly required to entering your sample and thus analyzing this certain fund (for academic research papers). My first thought for the practice would be to just trace back returns with regard to a certain reference fund having the same underlying asset management or investment strategy. However, i am (as an academic researcher) truly no expert in the practice analysis of hedge funds. $\endgroup$
    – skoestlmeier
    Commented Jan 9, 2019 at 13:18

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