Disorderly exits from crowded trades? - On the systemic risks of hedge funds, A reply to the ECB's statement on hedge funds

An article in the June 2006 edition of the European Central Bank's Financial Stability Review (FSR) claims that hedge fund activities pose considerable risk to the financial system.

Author(s):

We disagree with this conclusion, which is based on mere speculation. This document outlines the fallacies in the reasoning of the FSR article and makes some propositions on how to assess the welfare impacts of hedge funds. In particular, we argue that it would be worthwhile for financial regulators to work towards obtaining data on hedge fund leverage and counterparty credit risk. Such data would allow for a reliable assessment of the question of systemic risk. In addition, we argue that besides evaluating potential systemic risk, it should be recognised that hedge funds play an important role as providers of liquidity and diversification.
Pdf
Disorderly exits from crowded trades? - On the systemic risks of hedge funds, A ...
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Type: Position paper
Date: le 05/06/2006
Extra information : Ce document constitue une synthèse de travaux scientifiques conduits au sein de l'EDHEC. Pour plus d'informations, nous vous prions de vous adresser à Joanne Finlay, Direction de la recherche de l'EDHEC [ joanne.finlay@edhec.edu] Les opinions exprimées sont celles de l'auteur et n'engagent pas la responsabilité de l'EDHEC.
Research Cluster : Finance

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