Research on Interactions between Hedge Funds and International Stock Markets

摘要

Hedge funds have increased dramatically last decade to be the main force of the global financial market. In this paper, we mainly study the interactions between hedge funds and the world's major stock markets to infer the law of international capital flow. We select ten international stock markets consisting of emerging and developed markets as research objects. Firstly, it shows that the stock markets of Australia, United Kingdom and the United States are highly connected with hedge funds whereas situations are different for the stock markets of China and Brazil through cross correlation analysis from 2000 to 2008. Secondly, we examine if there exists dynamic long-term relationship between the two by the method of unit root tests and co-integration tests. Finally, based on Granger causality test in a vector autoregressive process, this paper empirically analyzes how the interactions changed before and after the subprime crisis. The results show that hedge funds were influenced deeply by the subprime crisis and the industry has changed their trading positions in the stock markets a lot.