Featured Research

from universities, journals, and other organizations

Hedge funds generally make financial markets work more smoothly, expert argues

Date:
April 9, 2014
Source:
Université du Luxembourg
Summary:
Financial markets generally work better thanks to so called “hedge” funds. “Although hedge funds are not well understood by the general public, they provide many important services to the wider economy,” said an expert.

Financial markets generally work better thanks to so called "hedge" funds. "Although hedge funds are not well understood by the general public, they provide many important services to the wider economy," said Kalle Rinne, a researcher at the Luxembourg School of Finance, the department of Finance at the University of Luxembourg.

Standard investment funds purchase a range of traditional financial instruments (typically shares and bonds) and this type of fund is generally favoured by households. However, hedge funds use all kinds of sophisticated financial tools on behalf of their knowledgeable clients, such as pension funds, banks and wealthy individuals.

Dr Rinne, working together with two colleagues, studied the performance from 1994-2011 of the US stock market and a representative sample of hedge funds. They found that, in general, hedge funds made it easier to buy and sell shares by increasing market "liquidity" on the stock market. As well, share price volatility was reduced. Both of these are desirable and encourage investment in stock markets, so helping companies with their growth plans.

However, there were occasions when the hedge fund market became stressed and these funds too then demanded more liquidity than they provided. However, in the period studied, hedge fund crises normally happened at different times to troubles on stock markets. The exception was 2008/9 when these problems coincided, with investors rushing to pull money out of every type of fund. Otherwise, for example, during the crash after the late 1990s "dotcom " boom, hedge funds continued to help the market work more efficiently.


Story Source:

The above story is based on materials provided by Université du Luxembourg. Note: Materials may be edited for content and length.


Journal Reference:

  1. P. Jylha, K. Rinne, M. Suominen. Do Hedge Funds Supply or Demand Liquidity? Review of Finance, 2013; DOI: 10.1093/rof/rft033

Cite This Page:

Université du Luxembourg. "Hedge funds generally make financial markets work more smoothly, expert argues." ScienceDaily. ScienceDaily, 9 April 2014. <www.sciencedaily.com/releases/2014/04/140409094038.htm>.
Université du Luxembourg. (2014, April 9). Hedge funds generally make financial markets work more smoothly, expert argues. ScienceDaily. Retrieved September 17, 2014 from www.sciencedaily.com/releases/2014/04/140409094038.htm
Université du Luxembourg. "Hedge funds generally make financial markets work more smoothly, expert argues." ScienceDaily. www.sciencedaily.com/releases/2014/04/140409094038.htm (accessed September 17, 2014).

Share This



More Science & Society News

Wednesday, September 17, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Some Tobacco Farmers Thrive Amid Challenges

Some Tobacco Farmers Thrive Amid Challenges

AP (Sep. 16, 2014) — The South's tobacco country is surviving, and even thriving in some cases, as demand overseas keeps growers in the fields of one of America's oldest cash crops. (Sept. 16) Video provided by AP
Powered by NewsLook.com
Space Race Pits Bezos Vs Musk

Space Race Pits Bezos Vs Musk

Reuters - Business Video Online (Sep. 16, 2014) — Amazon CEO Jeff Bezos' startup will team up with Boeing and Lockheed to develop rocket engines as Elon Musk races to have his rockets certified. Fred Katayama reports. Video provided by Reuters
Powered by NewsLook.com
President To Send 3,000 Military Personnel To Fight Ebola

President To Send 3,000 Military Personnel To Fight Ebola

Newsy (Sep. 16, 2014) — President Obama is expected to send 3,000 troops to West Africa as part of the effort to contain Ebola's spread. Video provided by Newsy
Powered by NewsLook.com
Obama Orders Military Response to Ebola

Obama Orders Military Response to Ebola

AP (Sep. 16, 2014) — Calling the Ebola outbreak in West Africa a potential threat to global security, President Barack Obama is ordering 3,000 U.S. military personnel to the stricken region amid worries that the outbreak is spiraling out of control. (Sept. 16) Video provided by AP
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
 
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:  

Breaking News:
from the past week

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

    Technology News



    Save/Print:
    Share:  

    Free Subscriptions


    Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

    Get Social & Mobile


    Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

    Have Feedback?


    Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
    Mobile iPhone Android Web
    Follow Facebook Twitter Google+
    Subscribe RSS Feeds Email Newsletters
    Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins