Analysis of the evolution and contradictions of hedge funds, their impact on stock markets

Abstract

Subject. The article considers topical issues related to the formation and development trends of hedge funds and their impact on the stock market, based on extensive historical factual material. Objectives. The aim is to investigate the formation and evolution of hedge funds and their effect on financial and stock markets. Methods. The study rests on comparative analysis, the method of analogies, and statistical processing of actual and historical data on hedge funds and stock markets. Results. The analysis of data on the dynamics of capitalization of the world stock market and the world Gross Domestic Product confirmed the outstripping growth of financial and stock markets in relation to the real economy. The paper shows that assets managed by hedge funds have increased more than thirty times since 1998. The data on losses of hedge funds during the 2008 global crisis demonstrated that hedge funds failed to fully fulfill their task for which they were created, i.e. risk hedging. Conclusions. The main problems and contradictions of the activities of hedge funds are that they, having significant financial resources and advanced investment technologies for profit-making, can both stabilize and destabilize international financial and stock markets. The internal contradiction of hedge funds is that hedging risks requires the use of conservative investment strategies, and profit maximization necessitates investing in risk-taking stock assets.