Researchers have warned that banks depending on hedge funds for short-term profits are seriously damaging the global economy.
Professor Andrew Kakabadse, leadership consultant and special adviser to the House of Commons Public Administration Select Committee, believes a growing mountain of derivatives are restricting efforts to stabilise financial markets.
“Our review of hedge funds has revealed that algorithmic trading programs are making incorrect assumptions about the direction and value of financial assets.
“Traders who rely on computer models are taking a ‘hit and miss’ approach in extreme and unpredictable conditions. The result is a sharp decline in hedge fund profits.”
The hedge fund sector is estimated to be worth $2 trillion and is growing at 20 per cent annually.
“Our findings also indicate that London has over £750 billion available for investment, the Eurozone €2 trillion and Wall Street $3.5 trillion. However, this money is effectively ‘idle’ due to limited investment opportunities in the current weak economic climate.
“The world’s largest banks have lowered interest rates to virtually nothing, with the Fed in particular operating at 0.25%. While this environment stops banks from breaking down, negative interest rates push the search for short-term profitability through unclear derivative products.”
Andrew Kakabadse worked closely with fellow researchers Nada Kakabadse and Kirill Perchanok to research the latest practise and processes behind hedge funds.
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