大阪大学　数理・データ科学教育研究センター
Center for Mathematical Modeling and Data Science,Osaka University

How Would Hedge Fund Regulation Affect Investor Behavior? Implications for Systemic Risk

南橋 尚明 (Bank of Canada)

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4. How Would Hedge Fund Regulation Affect Investor Behavior? Implications for Systemic Risk

大証寄附研究部門セミナーシリーズ 第38回

How Would Hedge Fund Regulation Affect Investor Behavior? Implications for Systemic Risk

南橋 尚明 (Bank of Canada)

This paper studies investors' demand for hedge funds to examine the effect of regulation being considered by policymakers that aims to enhance financial stability. Using data on fund-level characteristics, we estimate a hedge fund demand that takes into account investors' heterogeneous tastes for using leverage. Our estimation results demonstrate that some investors positively evaluate using leverage. We then conduct a policy simulation in which regulators put a cap on the hedge funds' leverage, as proposed by the Financial Stability Board in 2012.

Simulation results suggest that regulation would lower the total demand for hedge funds. In particular, regulation would lead to lower investments for highly leveraged funds and for risky strategies, which, in turn, would reduce systemic risk.