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The Effects of Management and Provision Accounts on Hedge Fund Returns - Part I: The HighWater Mark Scheme

Darolles, Serge; Gouriéroux, Christian (2014), The Effects of Management and Provision Accounts on Hedge Fund Returns - Part I: The HighWater Mark Scheme, in Huynh, Van-Nam; Kreinovich, Vladik; Sriboonchitta, Songsak, Modeling Dependence in Econometrics Selected Papers of the Seventh International Conference of the Thailand Econometric Society, Faculty of Economics, Chiang Mai University, Thailand, January 8-10, 2014, Springer : Berlin, p. 23-45. http://dx.doi.org/10.1007/978-3-319-03395-2_2

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Type
Communication / Conférence
Date
2014
Conference title
Seventh International Conference of the Thailand Econometric Society
Conference date
2014-01
Conference city
Chiang Mai
Conference country
Thaïlande
Book title
Modeling Dependence in Econometrics Selected Papers of the Seventh International Conference of the Thailand Econometric Society, Faculty of Economics, Chiang Mai University, Thailand, January 8-10, 2014
Book author
Huynh, Van-Nam; Kreinovich, Vladik; Sriboonchitta, Songsak
Publisher
Springer
Series title
Advances in Intelligent Systems and Computing
Series number
251
Published in
Berlin
ISBN
978-3-319-03394-5
Number of pages
575 p.
Pages
23-45
Publication identifier
Metadata
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Author(s)
Darolles, Serge
Gouriéroux, Christian
Abstract (EN)
A characteristic of hedge funds is not only an active portfolio management, but also the allocation of portfolio performance between different accounts, which are the accounts for the external investors and an account for the management firm, respectively. Despite a lack of transparency in hedge fund market, the strategy of performance allocation is publicly available. This paper shows that, for the High WaterMark Scheme, these complex performance allocation strategiesmight explain empirical facts observed in hedge fund returns, such as return persistence, skewed return distribution, bias ratio, or implied increasing risk appetite.
Subjects / Keywords
Hedge Fund; Sharpe Performance; Persistence of Returns; Bias Ratio; Manager Incentive; Risk Appetite; High Water Mark; Management Account Bias; Provision Account Bias
JEL
C53 - Forecasting and Prediction Methods; Simulation Methods
G11 - Portfolio Choice; Investment Decisions
G24 - Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
G23 - Non-bank Financial Institutions; Financial Instruments; Institutional Investors