Managerial Incentives And Risk Taking Behaviors Of Fund Managers
DOWNLOAD
Download Managerial Incentives And Risk Taking Behaviors Of Fund Managers PDF/ePub or read online books in Mobi eBooks. Click Download or Read Online button to get Managerial Incentives And Risk Taking Behaviors Of Fund Managers book now. This website allows unlimited access to, at the time of writing, more than 1.5 million titles, including hundreds of thousands of titles in various foreign languages. If the content not found or just blank you must refresh this page
Managerial Incentives And Risk Taking Behaviors Of Fund Managers
DOWNLOAD
Author : Seungyeon Won
language : en
Publisher:
Release Date : 2017
Managerial Incentives And Risk Taking Behaviors Of Fund Managers written by Seungyeon Won and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
This study was based on the hypothesis that a fund manager has incentive to take more risk with funds to conceal his actual management ability. A theoretical model was built to test this hypothesis. According to the model, when a fund manager's ability is not observable, a poor fund manager may increase a fund's risk to conceal his real ability, so that poor performance may be attributed to external market factors rather than ability. Previous studies have usually suggested that the different risk-taking behavior of fund managers is encouraged by the asymmetric delivery of information on fund returns. Unlike previous studies, this study focuses on real-world situations where a fund investor has more access to information about fund returns, and his decisions are often affected by concerns about fund reputation. This study highlights the fact that a fund manager has incentive to utilize fund investors' imperfect perception on his own managerial ability even under the condition that fund returns are all disclosed to fund investors. Additionally, this study applies Korean Equity fund data to empirically demonstrate that funds with lower risk-adjusted returns take more risks in the next period than do those with higher risk-adjusted returns, a finding that supports the results of the theoretical model.
Three Essays On Hedge Fund Fee Contracts Managerial Incentives And Risk Taking Behaviors
DOWNLOAD
Author : Gong Zhan
language : en
Publisher:
Release Date : 2011
Three Essays On Hedge Fund Fee Contracts Managerial Incentives And Risk Taking Behaviors written by Gong Zhan and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011 with Hedge funds categories.
Essay One: Under the principal-agent framework, we study and compare different compensation schemes commonly adopted by hedge fund and mutual fund managers. We find that the option-like performance fee structure prevalent among hedge funds is suboptimal to the symmetric performance fee structure. However, the use of high water mark (HWM) mitigates the suboptimality, though to a very limited extent. Both our theoretical models and simulation results show that HWM will induce more managerial efforts only when a fund is slightly under the water but it will unfavorably dampen incentives when a fund is too deep under the water and when the manager's skill is poor. Allowing managers to invest personal wealth in their own funds, however, helps align interests and provides positive managerial incentives. Essay Two: Existing literature has detected a "tournament behavior" among mutual fund managers that mid-year underperformers tend to take relatively higher risk than peers in the second half-year. We reexamine this issue and provide empirical evidence that such behavior does not exist among hedge fund managers, either at fund level or risk style level. Instead, hedge fund managers shift risk at mid-year in response to the moneyness of their incentive contracts. Also, risk shifting decisions are more driven by underperformance than by outperformance. HighWater Mark can strongly rein in excess risk-taking and therefore better aligns interests. Last, risk shifting on average does not improve either performance, moneyness of incentive contracts, or cash inflows. Essay Three: We use factor models and optimal change point regression models to capture the intra-year risk dynamics of hedge fund managers. Those risk shifting managers are further divided into 'Informed', 'Uninformed' and 'Misinformed' groups, according to their post-shifting risk adjusted performance. We find evidence that supports the existence of an Adverse Selection' problem of managers compensation schemes. Namely, incentive contracts, designed to share risks and align interests, induce the strongest risk taking from the least informed or skilled hedge fund managers, whose risk-shifting decisions result in undesired or even deteriorated risk-adjusted returns for investors. We also find that the High Water Mark has only limited influence on mitigating excessive risk shifting.
Compensation Option Managerial Incentives And Risk Shifting In Hedge Funds
DOWNLOAD
Author : Ying Li
language : en
Publisher:
Release Date : 2007
Compensation Option Managerial Incentives And Risk Shifting In Hedge Funds written by Ying Li and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with categories.
We examine the impact of the optionality of performance fee on the risk-shifting behavior of hedge fund managers. Since performance fees earned by hedge fund managers have the characteristics of a call option, the moneyness of the option may have an impact on the risk-taking behavior of managers. We seek to determine if hedge fund managers adjust their fund's volatility in reaction to the moneyness of the performance option. We find that managers increase their fund's volatility when the compensation option is quot;out of the moneyquot;. We find that managers of less liquid, small or young funds do not display that type of risk-shifting behavior. Further, we report that the longer a manager does not collect performance fees, the more likely she is to increase the fund volatility in the hope of increasing the fund value and thus collecting performance fees. Finally, we find that compared to absolute performance, relative performance has a stronger influence on the risk-taking behavior of hedge fund managers. This result is not uniform over all strategies.
Incentives From Compensation Option And Risk Taking Hedge Funds
DOWNLOAD
Author : Ying Li
language : en
Publisher:
Release Date : 2007
Incentives From Compensation Option And Risk Taking Hedge Funds written by Ying Li and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with categories.
With a new proxy for the compensation option to hedge funds management, we explore the managerial incentives and risk-taking behavior for an extended sample of hedge funds. We focus on the incentives in response to the compensation option as discussed in Goetzmann, Ingersoll, and Ross (2003), and to relative performance in a 'tournament' as proposed by Brown, Harlow, and Starks (1996). We find that managers do respond to the quot;moneynessquot; of their compensation option and the length of time a fund has stayed under-water by shifting their volatility strategies. We find that size, age, as well as management fee level all play a role in affecting this response. On the other hand, funds are also found to respond to relative performance as described in the 'tournament' theory.
Employment Risk Compensation Incentives And Managerial Risk Taking
DOWNLOAD
Author : Alexander Kempf
language : en
Publisher:
Release Date : 2007
Employment Risk Compensation Incentives And Managerial Risk Taking written by Alexander Kempf and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with categories.
Rewarding Risk Taking Or Managerial Skill The Case Of Private Equity Fund Managers
DOWNLOAD
Author : Axel Buchner
language : en
Publisher:
Release Date : 2015
Rewarding Risk Taking Or Managerial Skill The Case Of Private Equity Fund Managers written by Axel Buchner and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
Compensation of private equity fund managers typically consists of a fixed management fee and a performance related carried interest which entitles managers to option-like payoffs. We consider whether this structure tends to reward excessive risk-taking rather than managerial skill. Our model of manager compensation is based on risk-neutral pricing techniques in an equilibrium framework where investors earn zero abnormal returns net-of-fees. When the model is calibrated to a set of buyout funds, our results demonstrate that managers indeed have an incentive for excessive risk-taking in case only fee income from the current finite lifetime fund is considered. In the more realistic setting where managers take into account potential compensation from follow-on funds, the risk-taking incentives will depend on the manager's level of skill. Our model illustrates that the typical contractual arrangements can serve as a means of limiting possible risk-shifting behavior during fund lifetime. Also, skilled managers in this setting even have an incentive to reduce fund risk. Based on our sample of buyout funds we further show that the typical compensation structure is costly. Managers must generate substantial alpha in order to compensate investors for bearing the given fee components. Based on a standard compensation contract, annual break-even alphas amount to around 7 percent, and the present value of total compensation equals about 20 percent of committed capital.
A Simple Model Of Managerial Incentives And Portfolio Investment Decision
DOWNLOAD
Author : Binbin Deng
language : en
Publisher:
Release Date : 2017
A Simple Model Of Managerial Incentives And Portfolio Investment Decision written by Binbin Deng and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
What is the optimal portfolio allocation when an agent is investing both for a firm and for himself? I address this question by solving a manager's decision problem under a specific executive compensation structure. Specifically, I study how flat wage and stock compensation affect the manager's investment decision. I show that the allocation is the same regardless of whether the manager is prohibited from trading the public shares of his own firm. Results from calibration show that the manager invests less in firm-specific technology and more in the aggregate stock market as the risk of the firm's project increases. More stock compensation discourages him from investing in the firm's risky technology, but encourages more risk-taking in terms of personal investment. In addition, I prove that flat wage, effectively as a riskless bond, hedges risk and leads to more risk-taking behavior both in firm investment and personal investment.
Incentives And Risk Taking In Hedge Funds
DOWNLOAD
Author : Roy Kouwenberg
language : en
Publisher:
Release Date : 2007
Incentives And Risk Taking In Hedge Funds written by Roy Kouwenberg and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with categories.
This paper presents a theoretical study of how incentives affect hedge fund risk and returns and an empirical study of the performance of a large group of operating hedge funds. Most hedge fund managers receive a flat fee plus a share of the returns above a certain benchmark. We investigate how these features of hedge fund fees affect risk taking by the fund manager in the behavioural framework of prospect theory. The performance related component encourages funds managers to take excessive risk. However, risk taking is greatly reduced if a substantial amount of the manager's own money (at least 30%) is in the fund as well. The empirical results indicate that returns of hedge funds with incentive fees are not significantly more risky than the returns of funds without such a compensation contract. Average returns though, both absolute and risk-adjusted, are significantly lower in the presence of incentive fees. Part of this is the actual fee itself. Fund of hedge funds with higher fees earn higher net returns on average.
Incentive Contracts And Hedge Fund Management
DOWNLOAD
Author : James E. Hodder
language : en
Publisher:
Release Date : 2007
Incentive Contracts And Hedge Fund Management written by James E. Hodder and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with categories.
The behavior of a hedge-fund manager naturally depends on her compensation scheme, her preferences, and constraints on her risk-taking. We propose a numerical method which can be used to analyze the impact of these influences. The model leads to several interesting and novel results concerning her risk-taking and other managerial decisions. We are able to relate our results to partial results in the literature and show how they fit in a more general context. We also allow the manager to voluntarily shut down the fund as well as enhancing the fund's Sharpe Ratio through additional effort. Both these extensions generate additional insights. Throughout the paper, we find that even slight changes in the compensation structure or the extent of managerial discretion can lead to drastic changes in her risk-taking.
Stock Options And Managerial Incentives For Risk Taking
DOWNLOAD
Author : Rachel M. Hayes
language : en
Publisher:
Release Date : 2015
Stock Options And Managerial Incentives For Risk Taking written by Rachel M. Hayes and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
We provide new evidence on the relationship between option-based compensation and risktaking behavior by exploiting the change in the accounting treatment of stock options following the adoption of FAS 123R in 2005. The implementation of FAS 123R represents an exogenous change in the accounting benefits of stock options that has no effect on the economic costs and benefits of options for providing managerial incentives. Our results do not support the view that the convexity inherent in option-based compensation is used to reduce risk-related agency problems between managers and shareholders. We show that all firms dramatically reduce their usage of stock options (convexity) after the adoption of FAS 123R and that the decline in option use is strongly associated with a proxy for accounting costs. There is little evidence that the decline in option usage following the accounting change results in less risky investment and financial policies.Internet Appendix attached in the end.