The Operation of Hedge Funds: Econometric Evidence, Dynamic Modeling, and Regulatory Perspectives

Willi Semmler and Raphaële Chappe

Chapter 1 in Financial Econometrics Modeling: Derivatives Pricing, Hedge Funds and Term Structure Models, 2011, pp 3-34 from Palgrave Macmillan

Abstract: Abstract The Madoff case has all the makings of a Ponzi scheme. Ponzi schemes follow what Hyman Minsky described as Ponzi finance. Do hedge funds, or at least some of them, follow a similar scheme? The best summary of different financing practices, such as hedge, speculative, and Ponzi financing, is given in Minsky (1986). Hedge finance is a situation where operating cash flow can service all payment obligations associated with the financing. Speculative finance involves situations where operating cash flow supports interest payments but not repayment of principal. Ponzi finance describes a situation where operating cash flow is insufficient to cover either principal or interest payments, which can be financed only via an increase in liabilities, thus by a new inflow of funds.

Keywords: Systemic Risk; Hedge Fund; Risky Asset; Sharpe Ratio; Investment Company (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-29520-9_1

Ordering information: This item can be ordered from
http://www.palgrave.com/9780230295209

DOI: 10.1057/9780230295209_1

Access Statistics for this chapter

More chapters in Palgrave Macmillan Books from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().