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Locking in the Profits or Putting It All on Black? An Empirical Investigation into the Risk-Taking Behavior of Hedge Fund Managers
| Content Provider | Semantic Scholar |
|---|---|
| Author | Clare, Andrew Motson, Nick |
| Copyright Year | 2009 |
| Abstract | The ideal fee structure aligns the incentives of the investor with those of the fund manager. Mutual funds typically only charge a management fee that is a proportion of the funds under management. Hedge funds, on the other hand, generally change an incentive fee that is a fraction of the fund’s return each year in excess of the high-water mark. The justification generally given for these incentive fees is that they provide the manager with the incentive to target absolute returns. As these incentive fees can be considered a call option on the performance of the fund, it is possible that the managers’ incentives might vary according to the delta of this option. A number of articles have examined the optimal investment strategies of money managers in the presence of incentive fees within theoretical frameworks with seemingly conflicting results. Using a large database of hedge fund returns, the authors examine the risk taking behavior of hedge fund managers in response to both their past returns relative to their high-water mark and their past returns relative to their peer group. An attempt is made to reconcile these results with the theoretical frameworks proposed. |
| Starting Page | 7 |
| Ending Page | 25 |
| Page Count | 19 |
| File Format | PDF HTM / HTML |
| DOI | 10.3905/JAI.2009.12.2.007 |
| Volume Number | 12 |
| Alternate Webpage(s) | https://efmaefm.org/0EFMAMEETINGS/EFMA%20ANNUAL%20MEETINGS/2009-Milan/papers/EFMA2009_0103_fullpaper.pdf |
| Alternate Webpage(s) | http://www.cass.city.ac.uk/__data/assets/pdf_file/0006/69936/Locking-in-the-profits-or-putting-it-all-on-black.pdf |
| Alternate Webpage(s) | https://doi.org/10.3905/JAI.2009.12.2.007 |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
