Animation: How Hedge Funds Affect Capital Markets

“No single definition of hedge funds encompasses the vast variety of investment firms that are grouped under this category. Perhaps the defining similarity among the funds is that they all seek to exploit inefficiencies in the financial market by betting against over-valued securities and/or purchasing under-valued securities. From a social welfare perspective, hedge funds, as a category, help the market become more efficient by correcting valuations and forcing returns to come into alignment with risks.”