publication . Article . 2007

Regulating hedge funds.

Daníelsson, J.; Zigrand, JP.;
Open Access
  • Published: 01 Jan 2007 Journal: Financial stability review, issue 10 April, pages 29-36
Abstract
Due to the ever-increasing amounts under management and their unregulated and opaque nature, hedge funds have emerged as a key concern for policymakers. While until now, hedge funds have been left essentially unregulated, we are seeing increasing calls for regulation for both microprudential and macroprudential reasons. In our view, most calls for the regulation of hedge funds are based on a misperception of the effectiveness of financial regulations, perhaps coupled with a lack of understanding of the positive contribution of hedge funds to the financial system. There are real concerns about consumer protection following from the expansion of the consumer base....

1990 1992 1994 1996 1998 2000 2002 2004 2006 Funds (left-hand scale) Estimated assets (right-hand scale)

1 Hedge Fund Research, Inc., © HFR, Inc., January 2007, www.hedgefundresearch.com.

2 Hedge Fund Research, Ibid.

3 Macro funds attempt to identify inefficient pricing in stock markets, interest rates, foreign exchange rates, and physical commodities. Their top-down approach concentrates on understanding how global macroeconomic and political events affect the valuations of financial instruments; they tend to have broad investment mandates that allow them to hold positions in practically any financial instrument in any market.

4 Fung (W.) and Hsieh (D. A.) (2000): “Measuring the market impact of hedge funds”, Journal of Empirical Finance, vol. 7, pp. 1-36.

2001 2002 2003 2004 2005 2006 USD classified held by US and foreign banking organizations USD classified held by nonbanks Nonbanks' share of total classifications (right-hand scale)

23 Steel (R. K.) (2007): “Remarks of under secretary for domestic finance Robert K. Steel on private pools of capital,” February 27.

24 Ferguson (R.) (2006): “Financial regulation: seeking the middle way,” Fourth Joint Central Bank Research Conference on Risk Management and Systemic Risk, Frankfurt, Germany, November.

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