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A Comparative Historical Analysis Of Traditional Asset Classes In The European Union: The Case Of Hedge Funds

Author

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  • Jana Stockbauer

    (Alexandru Ioan Cuza University of Iasi)

Abstract

The paper at hand provides a comparative historical analysis of the role of hedge funds within the global financial system, with a specific focus on their interactions with traditional asset classes such as equities and bonds. Hedge funds, known for their high leverage, active management, and diverse, often sophisticated investment strategies, have emerged as pivotal players in financial markets. These characteristics enable hedge funds to enhance market efficiency through liquidity provision, price discovery, and offering diversification benefits that are not readily achievable through conventional asset classes. However, their speculative nature, complexity, and reliance on leverage also introduce significant concerns related to financial stability, particularly during periods of market stress. This study historically analyses how hedge funds and traditional asset classes respond to and recover from systemic shocks. The research methodology includes an analysis of performance metrics, recovery rates, and volatility patterns across various crises, highlighting the differential impacts on hedge funds versus equities and bonds. Empirical findings suggest that hedge funds generally exhibit higher resilience and quicker recovery from financial disruptions. This advantage is largely attributable to their flexible strategies, active risk management, and ability to dynamically reallocate capital in response to changing market conditions. The potential for rapid deleveraging, liquidity crises, and contagion effects during downturns underscores the dual nature of hedge funds as both stabilizers and potential destabilizers within the financial ecosystem. The findings have critical implications for policymakers, investors, and regulators aiming to strike a balance between fostering financial innovation and maintaining systemic stability. While hedge funds can contribute positively to market efficiency and resilience, their capacity to propagate risk necessitates ongoing regulatory oversight and prudent risk management practices. A deeper understanding of these dynamics is essential for developing frameworks that can harness the benefits of hedge funds while mitigating their potential threats to financial stability.

Suggested Citation

  • Jana Stockbauer, 2025. "A Comparative Historical Analysis Of Traditional Asset Classes In The European Union: The Case Of Hedge Funds," EUFIRE Conference Proceedings Series, Alexandru Ioan Cuza University Publisher, vol. 1(1), pages 386-408, October.
    • Handle: RePEc:cxa:eu2025:v:1:y:2025:i:1:p:386-408
    DOI: 10.47743/eufire-2025-1-30
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    References listed on IDEAS

    as
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    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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