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Hedge funds and systemic risk

Hedge funds and systemic risk

Dixon, Lloyd S; Kumar, Krishna B; Clancy, Noreen

"Hedge funds are a dynamic part of the global financial system. Their managers engage in innovative investment strategies that can improve the performance of financial markets and facilitate the flow of capital from savers to users. Although hedge funds play a useful role in the financial system, there is concern that they can contribute to financial instability. The collapse of Long-Term Capital Management (LTCM) in 1998 raised awareness that hedge funds could be a source of risk to the entire financial system. Hedge funds also invested heavily in many of the financial instruments at the heart of the financial crisis of 2007-2008, and it is appropriate to ask whether they contributed to the crisis. This report explores the extent to which hedge funds create or contribute to systemic risk (that is, the risk of a major and rapid disruption in one or more of the core functions of the financial system caused by the initial failure of one or more financial firms or a segment of the financial system) and the role hedge funds played in the financial crisis, the consequences of the 1998 failure of LTCM, and whether and how the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 addresses the potential systemic risks posed by hedge funds."--Page 4 of cover

eBook, Paperback, Electronic resource, Book. English. Electronic books.
Published Santa Monica, Calif. : RAND 2012

This resource is available electronically from the following locations


Statement of responsibility: Lloyd Dixon, Noreen Clancy, Krishna B. Kumar
ISBN: 0833077864, 0833077880, 9780833076847, 9780833077868, 9780833077882
Note: Print version record.
Note: Includes bibliographical references (pages 107-115).
Note: "RAND Corporation."
Physical Description: 1 online resource (xxx, 115 pages) : color illustrations.
Series: Rand Corporation monograph series
Subject: Financial risk United States.; Financial crises United States.; United States.; Hedge funds.; Financial institutions Management.; Financial risk.; Global Financial Crisis (2008-2009); Risk management Government policy.; Risk management Government policy United States.; Financial crises.; Financial institutions United States Management.; Hedge funds United States.; BUSINESS & ECONOMICS Investments & Securities Mutual Funds.; Global Financial Crisis, 2008-2009.
Series Title: Rand Corporation monograph series.
Local note: JSTOR Books at JSTOR Open Access


  1. Introduction
  2. Background on the Hedge Fund Industry
  3. The Collapse of Long-Term Capital Management
  4. Hedge Funds and the Financial Crisis of 2007-2008
  5. Potential Hedge Fund Threats to Financial Stability and Reforms to Address Them
  6. Conclusion
  7. Appendix: Regulatory Reforms That Address Potential Systemic Risks Posed by Hedge Funds.