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The hedge fund game

Abstract:

This paper examines theoretical properties of incentive contracts in the hedge fund industry. We show that it is very difficult to structure incentive payments that distinguish between unskilled managers, who cannot generate excess market returns, and skilled managers who can deliver such returns. Under any incentive scheme that does not levy penalties for underperformance, managers with no investment skill can game the system so as to earn (in expectation) the same amount per dollar of funds...

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Publication status:
Published
Peer review status:
Not peer reviewed

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Institution:
Wharton School, University of Pennsylvania
Department:
Department of Statistics
Role:
Author
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Institution:
University of Oxford
Division:
SSD
Department:
Economics
Oxford college:
Nuffield College
Role:
Author
Series:
University of Oxford Department of Economics Working Paper Series
Publication date:
2008-01-01
Language:
English
Keywords:
Subjects:
UUID:
uuid:53f5fe07-c2f0-4510-b7f1-57d845d787bb
Local pid:
ora:1731
Deposit date:
2008-03-14

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