Hedge funds are collective investment vehicles, often organized as private partnerships and resident offshore for tax and regulatory purposes. Their legal status places few restrictions on their portfolios and transactions, leaving their managers free to use short sales, derivative securities,...

Each episode of volatility in financial markets heightens the attention of government officials and others to the role played by the hedge fund industry in financial market dynamics. Hedge funds were implicated in the 1992 crises that led to major exchange rate realignments in the European...