Measuring the market impact of hedge funds |
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| Affiliation: | 1. Universidad Pública de Navarra, Spain;2. Universidad CEU Cardenal Herrera, Spain;1. Asia and Pacific Department, International Monetary Fund, 700 19th Street, N.W., Washington, DC, USA;2. International Department, Bank of Korea, 39 Namdaemun-Ro, Jung-Gu, Seoul, Republic of Korea;3. Department of International Business & Trade, Kyung Hee University, 26 Kyungheedae-ro, Dongdaemun-gu, Seoul 02447, Republic of Korea;1. Vinod Gupta School of Management, Indian Institute of Technology, Kharagpur 721302, India;2. Department of Economics, Trent University, Peterborough, Ontario K9J 7B8, Canada;3. Economics Group, Newcastle University Business School, Newcastle University, Newcastle upon Tyne, UK |
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| Abstract: | Hedge funds often employ opportunistic trading strategies on a leveraged basis. It is natural to find their footprints in most major market events. A “small bet” by large hedge funds can be a sizeable transaction that can impact a market. This study estimates hedge fund exposures during a number of major market events. In some episodes, hedge funds had significant exposures and were in a position to exert substantial market impact. In other episodes, hedge fund exposures were insignificant, either in absolute terms or relative to other market participants. In all cases, we found no evidence of hedge funds using positive feedback trading strategies. There was also little evidence that hedge funds systematically caused market prices to deviate from economic fundamentals. |
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