In this paper we would like to shed some more light on these aspect of European policy coordination both through the use of a simple analytic model and through an empirical evualuation of the potential gains of superior European strategies.

This paper deals with two issues. On the one hand, it shows that structural changes in financial markets and in the hedge funds industry make the “light-touch” arguments for regulating hedge funds no longer relevant. On the other hand, pleas for stronger regulation of hedge funds are getting...