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
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: Suggested Citation
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