Hedge funds bailed quickly during crisis.

• Position: Stock Market

During the financial crisis of 2007-09, hedge funds sold their stocks much more aggressively than mutual funds at the first signs of poor performance, according to a study of stock trading at Ohio State University, Columbus. Hedge fund investors withdrew almost three times as much of the money they invested as compared to mutual fund investors. As a result, the total returns of mutual funds were much worse during the crisis than were those of hedge funds.

That means ordinary investors--who are more likely to own mutual funds-were hit hardest by the drop in stock prices, while hedge fund investors were able to limit their losses.

"Hedge fund investors rushed to the exits when stock prices started falling. As a consequence, hedge funds heavily sold their stocks. That left mutual fund clients to bear the full brunt of the falling market;' explains Itzhak BenDavid, coauthor of the study and assistant professor of finance.

Hedge funds are private investment vehicles meant for wealthy investors who seek higher-than-average returns through sophisticated and often aggressive tactics. Many hedge fund investors are institutions, such as insurance companies, pension funds, and university endowments.

One reason hedge fund managers sold so quickly during the crisis is that they typically borrow money to make their purchases, and their lenders asked for their money back as stock prices started falling.

Another reason is...