Knowing the positions of hedge funds in financial markets is critical in evaluating the effect that they may have on the dynamics of financial markets. In the first place, knowing positions is necessary to evaluate how changes in positions affect financial prices. And knowing positions of hedge funds, as well as those of other market participants, is necessary to evaluate how hedge funds' positions affect the positions of other market players.

The problem is that data on market positions are proprietary information and are not publicly available: this creates a serious evidentiary problem. Analysts have tried to work around this by using various methods to infer hedge funds' positions in various markets. One method is to talk with a wide range of market participants and obtain market estimates of positions at particular points in time. But these data are anecdotal and are not available in times series format, and so they do not lend themselves to econometric analysis.

Brown, Goetzman and Park (1998) have suggested another way to get around the lack of data. They argued that positions can be inferred from the aggregate returns and net asset values of individual hedge funds. Returns and net asset values are more or less publicly available information.