Date of Award


Degree Type


Degree Name

Executive Doctorate in Business (EDB)



First Advisor

Dr. Vikas Agarwal

Second Advisor

Dr. Conrad Ciccotello

Third Advisor

Dr. Kevin Mullally


In this study, I examine whether low R2 funds are exposed to higher equity systematic tail risk that is not accounted for in the existing multi-factor models used to evaluate hedge funds. With a parsimonious set of risk factors that includes systematic tail risk, I show that there is a significant increase (about 12%) in the R2 for funds in the lowest quintile of R2. In contrast, the increase in R2 for funds in the other quintiles of R2 is relatively modest (about 2%). Moreover, I show that the spreads between the future performance of low and high R2 funds narrows by about 9% after accounting for the systematic tail risk factor. I also show that 90% of the decrease in future performance spread is driven by accounting for tail risk in the low R2 funds. My results provide evidence that superior performance of low R2 funds may not be entirely attributable to higher managerial skill, and that systematic tail risk of such funds can partially explain why they perform well.