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On average, hedge funds fail slowly rather than through sudden crashes. I model a fund's probability of failure using a dynamic logit regression and find that fund failures are predicted by past performance and fund flows measured with a lag of seven months. Hedge funds fail as poor performance over a period of time leads to fund withdrawals by investors. A fund's failure risk predicts negatively the fund's future returns. Sorting hedge funds into quintiles by the predicted failure probabilitydoi:10.2139/ssrn.1324341 fatcat:nsfz5qhunnglpfsioiysmuv3pi