Question: How Do Hedge Funds Impact the Stock Market?
Answer: Hedge funds have made the stock market much more risky. Since they are unregulated, they can make investments without scrutiny by the SEC. Unlike mutual funds, they don’t have to report quarterly on their holdings. This means no one really knows what they are invested in.
Their use of derivatives means that, with little actual money invested, they have the capability to create large swings in the market. For example, many experts have said that the run-up in oil prices in July of 2006 was caused, in part, by hedge funds. Although no one really knows how much of the market is controlled by hedge funds, Credit Suisse estimates it could be half of the New York and London Stock Exchanges. (Source: International Herald Tribune, "U.S. Regulators Grow Alarmed Over Hedge Fund Hotels,” January 1, 2007)
Hedge Funds FAQ
- What Are Hedge Funds?
- Who Invests in Hedge Funds?
- How Do Hedge Funds Impact the Stock Market?
- How Do Hedge Funds Impact the U.S. Economy?
- What Was the LTCM Hedge Fund Crisis?
