Hedge funds and systemic risk / Lloyd Dixon, Noreen Clancy, Krishna B. Kumar.

• Superior document: Rand Corporation monograph series
• Author: Rand Corporation.; Dixon, Lloyd S.
• TeilnehmendeR: Clancy, Noreen.; Kumar, Krishna B.; Rand Corporation.
• Year of Publication: 2012
• Language: English
• Series: Rand Corporation monograph series.
• Physical Description: 1 online resource (147 p.)
• Notes: "MG-1236-CCEG"--P. 4 of cover.

This report explores the extent to which hedge funds create or contribute to systemic risk, the role they played in the financial crisis, 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.

Table of Contents

Cover; Title Page; Copyright; Preface; Contents; Figures; Tables; Summary; Acknowledgments; Abbreviations; CHAPTER ONE: Introduction; Potential Contribution of Hedge Funds to Systemic Risk; Research Methods; Organization of This Report; CHAPTER TWO: Background on the Hedge Fund Industry; Overview of the Hedge Fund Industry; Legal Structure and Role in the Financial System; Number of Hedge Funds and Assets Under Management; Restrictions on Investor Withdrawals from Hedge Funds; Characteristics of Hedge Fund Investors

Distribution of Funds in the Industry, by Size and Characteristics of Hedge Fund Advisers Hedge Fund Returns and Investment Strategies; Attributes of Hedge Funds That Amplify and Mitigate Their Potential Contribution to Systemic Risk; CHAPTER THREE: The Collapse of Long-Term Capital Management; Factors Leading to the Collapse of Long-Term Capital Management; The Rescue of Long-Term Capital Management; The Aftermath of the Collapse of Long-Term Capital Management; Lessons from the Collapse of Long-Term Capital Management; CHAPTER FOUR: Hedge Funds and the Financial Crisis of 2007-2008.

Factors Underlying the Financial Crisis Hedge Fund Contribution to the Financial Crisis Through the Credit Channel; Impact of Hedge Fund Losses on Creditors; The Failure of the Bear Stearns Hedge Funds; Hedge Fund Contribution to the Financial Crisis Through the Market Channel; Hedge Fund Contribution to the Buildup of the Housing Bubble; Hedge Fund Deleveraging; Short Selling; Hedge Fund Runs on Investment Banks; Assessment of Hedge Fund Contributions to the Financial Crisis; CHAPTER FIVE: Potential Hedge Fund Threats to Financial Stability and Reforms to Address Them

Potential Hedge Fund Threats to Financial Stability Lack of Information on Hedge Funds; Lack of Appropriate Margin in Derivatives Trades; Runs on Prime Brokers; Short Selling; Compromised Risk-Management Incentives; Lack of Portfolio Liquidity and Excessive Leverage; Financial Reforms That Address Hedge Fund Contributions to Systemic Risk; Reforms That Address Lack of Information on Hedge Funds; Reforms That Address Lack of Appropriate Margin in Derivatives Trades; Reforms That Address Hedge Fund Runs on Prime Brokers; Reforms That Address Short Selling

Reforms That Address Risk-Management Incentives Reforms That Address the Liquidity and Leverage of Hedge Fund Portfolios; Summary; CHAPTER SIX: Conclusion; APPENDIX: Regulatory Reforms That Address Potential Systemic Risks; References