kaal:claim:2748096-008

Market events like the LTCM failure can escalate into global financial crises when many highly leveraged hedge funds holding illiquid portfolios are obligors of a small number of major financial institutions, because adverse price movements dry up credit and depress collateral values.

A large part of the literature recognizes that market events such as the LTCM failure may lead to global financial crises if many highly leveraged hedge funds with illiquid portfolios are obligors of a small number of major financial institutions

Wulf A. Kaal, Timothy A. Krause, Hedge Funds and Systemic Risk (2016), THE DEBATE ON HEDGE FUNDS' SYSTEMIC RISK, p. 4
https://ssrn.com/abstract=2748096 · source PDF

Wulf A. Kaal, Timothy A. Krause, Hedge Funds and Systemic Risk (2016). SSRN: https://ssrn.com/abstract=2748096

• high leverage
• illiquid fund portfolios
• concentration of lending among few major financial institutions
• adverse fluctuations in market prices

conditionsupport: argueddefisystemic-risk

• extends kaal:claim:2470008-005 The systemic risk of hedge funds arises principally from the combination of aggressive investment strategies a...

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