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Hedge funds and their implications for financial stability

Author

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  • Garbaravicius, Tomas
  • Dierick, Frank

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

Suggested Citation

  • Garbaravicius, Tomas & Dierick, Frank, 2005. "Hedge funds and their implications for financial stability," Occasional Paper Series 34, European Central Bank.
    • Handle: RePEc:ecb:ecbops:200534
    Note: 534483
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpops/ecbocp34.pdf
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    References listed on IDEAS

    as
    1. Schönenberger, Andreas & Schmiedel, Heiko, 2005. "Integration of securities market infrastructure in the euro area," Occasional Paper Series 33, European Central Bank.
    2. Michael Sturm & Nikolaus Siegfried, 2005. "Regional monetary integration in the member states of the Gulf Cooperation Council," Occasional Paper Series 31, European Central Bank.
    3. Tomas Garbaravicius & Frank Dierick, 2005. "Hedge funds and their implications for financial stability," Occasional Paper Series 34, European Central Bank.
    4. Heiko Schmiedel & Andreas Schönenberger, 2005. "Integration of securities market infrastructures in the euro area," Occasional Paper Series 33, European Central Bank.
    5. Sturm, Michael & Siegfried, Nikolaus, 2005. "Regional monetary integration in the member states of the Gulf Cooperation Council," Occasional Paper Series 31, European Central Bank.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    asset management; crowded trades; financial regulation; Financial Stability; hedge funds; prime brokerage; risk management;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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