Offshore investment funds: Monsters in emerging markets?

Less moderated by tax consequences, and less subject to supervision and regulation, offshore investment funds are alleged to engage in trading behaviors that are different from those of their onshore counterparts. Some have thought that means offshore funds may trade more intensely, and could also engage in trading patterns that make financial markets volatile. The financial crises of 1997-98 in emerging markets focused particular concern on these offshore investment funds, making many wonder if they act as monsters within those markets. Two researchers who have examined the data find, however, that though their trading is more intense, offshore investment funds don’t engage in other behaviors that help to destabilize markets. Therefore, these researchers conclude, offshore invesment funds “are not especially worrisome monsters.”