# kaal:claim:2748096-021

**Claim.** When hedge funds simultaneously liquidate positions and reduce leverage, leverage generates a fire-sale externality that raises systemic risk, arising when a fund must sell assets it regards as drastically undervalued in order to meet margin calls or redemption requests.

**Type.** failure  **Support.** argued

**Holds when.**

- simultaneous deleveraging across funds
- binding margin calls or redemption requests

**Source quote.**

> If hedge funds simultaneously liquidate positions and reduce leverage, leverage can also increase the risk of a fire-sale externality that increases systemic risk.

**From.** Wulf A. Kaal, Timothy A. Krause, *Hedge Funds and Systemic Risk* (2016), Leverage, page 8

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

**Verify.** sha256 of source PDF `8f30260f2c1db728b45c4f3b9b7c64358cf9d3217277bc3c63a910c32f87b508` at https://raw.githubusercontent.com/wulfkaal/Academic-Papers/main/papers/pdf/Kaal%20and%20Krause%20-%202016%20-%20Hedge%20Funds%20and%20Systemic%20Risk.pdf

**Failure mode.** fire-sale externality  (family: systemic-risk-transmission)

**Topics.** systemic-risk, risk-and-incentives

**Keywords.** fire-sale, deleveraging, margin-calls, externality, systemic-risk

**Canonical form.** This markdown file is the canonical hashed representation of the claim. Its sha256 is the content hash used for attestation.