We develop a new approach that investigates the economic determinants of contagion among hedge funds. Our approach explicitly takes into account the left tail dependency between returns. We …nd that funding liquidity (measured with margins on equity, interest rate and currency futures contracts for members of the Chicago Mercantile Exchange), which captures the extent to which a fund can …nance its positions, is a signi…cant determinant of …nancial contagion. Our results on funding liquidity con…rm the predictions made by Brunnermeier and Pedersen (2009) that market liquidity and funding liquidity interact to create loss and liquidity spirals in which shocks to market liquidity reduce funding liquidity which in turn further reduces market liquidity.