Hedge Funds and Their Implications for Financial Stability

76 Pages Posted: 15 Nov 2005

See all articles by Tomas Garbaravicius

Tomas Garbaravicius

European Central Bank (ECB)

Frank Dierick

European Central Bank (ECB)

Date Written: August 2005

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.

Keywords: asset management, crowded trades, financial regulation, financial stability, hedge funds, prime brokerage, risk management

JEL Classification: G15, G18, G21, G23, G24

Suggested Citation

Garbaravicius, Tomas and Dierick, Frank, Hedge Funds and Their Implications for Financial Stability (August 2005). ECB Occasional Paper No. 34, Available at SSRN: https://ssrn.com/abstract=752094 or http://dx.doi.org/10.2139/ssrn.752094

Tomas Garbaravicius (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Frank Dierick

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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