Incentive Contracts and Hedge Fund Management
| Type of Publication: | Journal article |
| URI (citable link): | http://nbn-resolving.de/urn:nbn:de:bsz:352-opus-52868 |
| Author: | Jackwerth, Jens Carsten; Hodder, James E. |
| Year of publication: | 2007 |
| Published in: | Journal of Financial and Quantitative Analysis ; 42 (2007), 4. - pp. 811-826 |
| Summary: |
We investigate incentive effects of a typical hedge-fund contract for a manager with power utility. With a one-year horizon, she displays risk-taking that varies ramatically with fund value. We extend the model to multiple yearly evaluation periods and find her risk-taking is rapidly moderated if the fund performs reasonably well. The most realistic approach to modeling fund closure uses an endogenous shutdown barrier where the manager optimally chooses to shut down. The manager increases risk-taking as fund value approaches that barrier, and this boundary behavior persists strongly with multiyear horizons.
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| Subject (DDC): | 330 Economics |
| Link to License: | Attribution-NonCommercial-NoDerivs 2.0 Generic |
| Bibliography of Konstanz: | Yes |
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JACKWERTH, Jens Carsten, James E. HODDER, 2007. Incentive Contracts and Hedge Fund Management. In: Journal of Financial and Quantitative Analysis. 42(4), pp. 811-826
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