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Hedge Funds Development and their Role in Economic Crises

Author

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  • Palaskas Theodosios
  • Stoforos Chrysostomos

    (Panteion University Athens, Greece)

  • Drakatos Costantinos

    (Academy of Athens Athens, Greece)

Abstract

The rapid development of hedge funds and their emanating critical role in the financial markets and the financial system globally, combined with the increased frequency of economic crises during the last 25 years, brought them to the centre of discussions concerning the following issue: «To what extent the operation of hedge funds can affect the birth, peak and even geographic expansion of economic crises?». In this context, the present paper aims to contribute to the limited and sporadic discussion of whether the hedge funds could be held responsible for economic crises. To this extend the growth and the impact of hedge funds on financial crises is analysed and evaluated using the HFR database -in their birth, aggravation or even geographic expansion- both from a historical perspective and in relation to the 2007-today crisis. Based on the evidence presented in this paper, hedge funds cannot be blamed for the birth of the crises of the last 25 years. Comparing the data across the different crises, it becomes obvious that, with the exception of the 2007 subprime crisis, where almost all hedge fund strategies suffered considerable losses, in all other crises studied in the present paper, the hedge fund strategies with a negative return were the ones that had an exposure to the specific sector and/or region that was in the centre of the crisis i.e. Emerging market strategy presented substantial negative monthly performance over the Asian crisis, Convertible arbitrage strategy was affected by the dot-com crisis, etc.

Suggested Citation

  • Palaskas Theodosios & Stoforos Chrysostomos & Drakatos Costantinos, 2013. "Hedge Funds Development and their Role in Economic Crises," Scientific Annals of Economics and Business, Sciendo, vol. 60(1), pages 168-181, July.
  • Handle: RePEc:vrs:aicuec:v:60:y:2013:i:1:p:168-181:n:15
    DOI: 10.2478/aicue-2013-0015
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    References listed on IDEAS

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    1. Photis Lysandrou, 2011. "The primacy of hedge funds in the subprime crisis," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 34(2), pages 225-254.
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    Cited by:

    1. Stoforos, Chrysostomos E. & Degiannakis, Stavros & Palaskas, Theodosios B., 2017. "Hedge fund returns under crisis scenarios: A holistic approach," Research in International Business and Finance, Elsevier, vol. 42(C), pages 1196-1207.

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