Hedge funds and the technology bubble¶
K. BRUNNERMEIER, M., & NAGEL, S. (2004). Hedge funds and the technology bubble. Journal of Finance, 59(5), 2013-2040.
Cited by¶
1 citation across 1 artifact.
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Primes¶
- Arbitrage (Finance)
- Brunnermeier and Nagel (2004) provide a complementary empirical case from the late-1990s technology bubble: rather than correcting overpriced tech stocks, sophisticated hedge funds rode the bubble and reduced positions only ahead of individual stock collapses, illustrating how rational arbitrageurs facing synchronization risk and funding constraints can amplify rather than dampen mispricings, generating the positive-feedback fragility seen in flash-crash episodes.
This sourceEmpirical study of hedge-fund holdings during the late-1990s tech bubble: rather than shorting overpriced stocks, sophisticated funds were heavily invested in tech and reduced positions in individual names just before their collapse, illustrating how synchronization risk and funding constraints can lead arbitrageurs to amplify rather than correct mispricings.
Supported in partVerified against the work's full text
Documents hedge funds riding the tech bubble and cutting individual stocks before declines, consistent with limits-to-arbitrage models; flash-crash link is not in the paper.
“Hedge funds captured the upturn, but, by reducing their positions in stocks that were about to decline, avoided much of the downturn.”
- Brunnermeier and Nagel (2004) provide a complementary empirical case from the late-1990s technology bubble: rather than correcting overpriced tech stocks, sophisticated hedge funds rode the bubble and reduced positions only ahead of individual stock collapses, illustrating how rational arbitrageurs facing synchronization risk and funding constraints can amplify rather than dampen mispricings, generating the positive-feedback fragility seen in flash-crash episodes.
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