Reconsidering Hedge Fund Contagion

A widely held view concerning hedge funds is that they act as a negative disruptive force in financial markets due to “contagion.” Hedge funds are often viewed as culprits in both the 2007–2008 financial crisis and the 2007 quant crisis, for example. The authors evaluate both existing and new eviden...

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Bibliographic Details
Published in:The journal of alternative investments 2018-06, Vol.21 (1), p.27-38
Main Authors: Sias, Richard, Turtle, H.J., Zykaj, Blerina
Format: Article
Language:English
Subjects:
Economic crisis
Equity
Equity funds
Hedge funds
Institutional investments
Investment advisors
Investors
Liquidity
Stock exchanges
Stocks
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Summary:A widely held view concerning hedge funds is that they act as a negative disruptive force in financial markets due to “contagion.” Hedge funds are often viewed as culprits in both the 2007–2008 financial crisis and the 2007 quant crisis, for example. The authors evaluate both existing and new evidence of: 1) hedge fund contagion, 2) hedge fund crowding, 3) hedge funds’ role in the 2007–2008 financial crisis, and 4) hedge funds’ role in the August 2007 quant crisis. Contrary to conventional wisdom, the popular press, and most academic work, the authors find little evidence to support the view that hedge fund contagion has widespread negative effects on markets and mispricing.
ISSN:1520-3255
2168-8435
DOI:10.3905/jai.2018.21.1.027