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Hedge funds and their implications for financial stability

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  • Tomas Garbaravicius
  • Frank Dierick
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    Abstract

    The paper provides an overview of the hedge fund industry, mainly from a financial stability and European angle. It is primarily based on an extensive analysis of information from the TASS database. On the positive side of the financial stability assessment, hedge funds have a role as providers of diversification and liquidity, and they contribute to the integration and completeness of financial markets. Possible negative effects occur through their impact on financial markets (e.g. via crowded trades) and financial institutions (e.g. via prime brokerage). Several initiatives have been launched to address these concerns and most of them follow indirect regulation via banks. If any direct regulation were to be considered, it would probably have to be implemented in a coordinated manner at the international level. At the EU level there is currently no common regulatory regime, although some Member States have adopted national legislation.

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    File URL: http://www.ecb.europa.eu/pub/pdf/scpops/ecbocp34.pdf
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    Bibliographic Info

    Paper provided by European Central Bank in its series Occasional Paper Series with number 34.

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    Length: 74 pages
    Date of creation: Aug 2005
    Date of revision:
    Handle: RePEc:ecb:ecbops:20050034

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    Related research

    Keywords: Asset management; crowded trades; financial regulation; financial stability; hedgefunds; prime brokerage; risk management.;

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    References

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    1. Michael Sturm & Nikolaus Siegfried, 2005. "Regional monetary integration in the member states of the Gulf Cooperation Council," Occasional Paper Series, European Central Bank 31, European Central Bank.
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    Citations

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    Cited by:
    1. Bussiere, M. & Hoerova, M. & Klaus, B., 2012. "Commonality in hedge fund returns: driving factors and implications," Working papers, Banque de France 373, Banque de France.
    2. Bengtsson, E., 2013. "Fund Management and Systemic Risk - Lessons from the Global Financial Crisis," CITYPERC Working Paper Series, Department of International Politics, City University London 2013-06, Department of International Politics, City University London.
    3. John Kambhu & Til Schuermann & Kevin J. Stiroh, 2007. "Hedge funds, financial intermediation, and systemic risk," Staff Reports, Federal Reserve Bank of New York 291, Federal Reserve Bank of New York.
    4. King, Michael R. & Maier, Philipp, 2009. "Hedge funds and financial stability: Regulating prime brokers will mitigate systemic risks," Journal of Financial Stability, Elsevier, Elsevier, vol. 5(3), pages 283-297, September.
    5. Stulz, Rene M., 2007. "Hedge Funds: Past, Present, and Future," Working Paper Series, Ohio State University, Charles A. Dice Center for Research in Financial Economics 2007-3, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    6. Mark Carlson & Jason Steinman, 2008. "Market conditions and hedge fund survival," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2008-28, Board of Governors of the Federal Reserve System (U.S.).
    7. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung (ed.), 2007. "Das Erreichte nicht verspielen. Jahresgutachten 2007/08," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 200708.

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