Hedge Funds and Systemic Risk: A Modest Proposal

• Main Author: Abraham, Shalomi
• Other Authors: Iacobucci, Edward
• Language: en_ca
• Published: 2011
• Subjects: Hedge Funds; Law and Economics; Systemic Risk; Law; 0398
• Online Access: http://hdl.handle.net/1807/30070

This paper explores the economic rationales underpinning potential hedge fund regulation, and reviews the arguments about why rules aimed to mitigate systemic risk may be economically efficient. The paper presents a limited definition of systemic risk, and proposes that an international macro-prudential supervisory body be set up for the Ontario, U.S. and U.K. markets to collect systemically important information about hedge funds and to recommend policy changes in light of this information. The paper also reviews the proposed regulatory reforms in the United States that will apply to hedge funds, and argues that while helpful, such regulations are sub-optimal because they do not consider certain important characteristics of systemic risk.