The Enigmatic World of Hedge Funds: Benefits and Risks (El enigmatico mundo de los hedge funds: beneficios y riesgos)

Abstract:     
Hedge funds just celebrated their first anniversary in Spain but their origins date back to the midtwentieth century. Since then, this industry has grown continuously worldwide from a few funds in a few famous managers' hands to thousands of them operating in a heterogeneous universe of investment styles, assets, and markets. Despite such heterogeneity, they preserve a few distinctive features, mainly, their restricted access to the general public, little regulation, a huge flexibility in their investment policies and little transparency. Such opacity, combined with the complexity of some of their operations, has made HF into one of the most enigmatic figures in the modern financial universe. This document analyzes the main characteristics of HF and their interaction with financial markets. It seems that the vulnerability of the system to isolated episodes of collapse of a HF has decreased in recent years although this has not stop pressures to regulate HF. Nonetheless, the benefits that are also attributed to such funds hinder consensus on this point and demand that any measure that would restrict in any way their current investment flexibility should be subject to a full-fledged analysis of both costs and benefits.

Note: Downloadable document is in Spanish.

Number of Pages in PDF File: 38

Keywords: hedge funds, risk, derivatives, leverage

JEL Classification: G10, G23, G28

working papers series