Emma Trincal at TheStreet.com credits hedge funds with the recent fall in oil stocks. Fund redemptions and the need to book gains going into year end seem to adding to the volatility of oil stocks. On the flipside some see the recent rise in retail stocks coming from the unwinding of short positions.

The impact of redemptions is part of a larger debate on Wall Street about the role of hedge funds in market volatility. Some analysts say that while hedge funds can temporarily exacerbate price swings, on the whole, they do as much to reduce volatility as to create it.

Hedge funds are often liquidity providers, taking the other side of esoteric hedging trades and keeping companies honest through their willingness to go short. But when mutual fund managers, institutional investors and hedge funds are all bailing out of a trade, the impact of hedge funds on the market tends to be significant.

“Even though most of the time, hedge funds have a dampening effect on volatility, it is fair to say that in recent days, they have contributed to the recent fall in energy prices,” says Justin Dew, a hedge fund analyst at Standard & Poor’s.

Volatility comes in all sorts of forms, and hedge funds are the current culprit in the popular press. John Crudele at the New York Post highlights some research that purports to show an increased ‘month-end effect.’ The supposition is that hedge funds are driving up stock prices at month end for their own, non-fundamental purposes.

“The calendar seems to have taken on a significance in the modern market,” says Panzner, who is head of sales trading at his firm.

We are going to have to continue to live with the effects of hedfe funds and their trading for some time to come. You can read more about seasonality on our site here.

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