Hedge Funds and Financial Stability

European Parliament - Policy Department Economic and Scientific Policy, 2007

91 Pages Posted: 16 Apr 2008 Last revised: 14 Aug 2009

See all articles by Philip A. Stork

Philip A. Stork

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Casper G. de Vries

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: November 30, 2007

Abstract

This study investigates empirically the effects that hedge funds can have on the stability of the financial system. We conclude that hedge funds are in general less risky than banks. We do not find much evidence for the fear that hedge fund failures can trigger a systemic crisis in the banking sector. The main risk resides in hedge fund failures that may bring down a bank and thereby indirectly also endanger the stability of other banks and the payment system. If the hedge fund industry is to be regulated further, it should be for this reason.

Keywords: Hedge Funds, Financial Stability

JEL Classification: G15, G21, G28

Suggested Citation

Stork, Philip A. and De Vries, Casper, Hedge Funds and Financial Stability (November 30, 2007). European Parliament - Policy Department Economic and Scientific Policy, 2007, Available at SSRN: https://ssrn.com/abstract=1120595

Philip A. Stork (Contact Author)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Casper De Vries

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
+31 10 408 8956 (Phone)
+31 10 408 9147 (Fax)

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands
+31 10 408 8956 (Phone)
+31 10 408 9147 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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