Hedge Funds Improve Efficiency, Unless Liquidity Dries Up: Fed

Most of the new regulations that have so far come out of the financial crisis have focused on the country’s largest banks, but now that attention has turned to the role of hedge funds in the market, analysts are debating both how alternatives may have affected the crisis and whether new rules are necessary.

Hedge funds' impact on markets depends on market liquidity

“Using comprehensive data on quarterly changes in hedge fund equity holdings between 2000 and 2012, we find that stocks bought by hedge funds subsequently increase in price efficiency compared with stocks sold by hedge funds in the same period,” says a recent Fed study written by...