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The Effects of Management and Provision Accounts on Hedge Fund Returns - Part II : The Loss Carry Forward Scheme

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  • Serge Darolles

    ()
    (Université Paris-Dauphine et CREST)

  • Christian Gouriéroux

    ()
    (CREST et Université de Toronto)

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    Abstract

    In addition to active portfolio management, hedge funds are characterized by the allocation of portfolio performance between the external investors and the management firm accounts. This allocation can take different forms, such as the Loss Carry Forward scheme, and some of them can be coupled with performance smoothing techniques. This paper shows that this additional smoothing component might explain some empirical facts observed on the distribution and the dynamics of hedge fund returns

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    File URL: http://www.crest.fr/images/docTravail2013/2013-23.pdf
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    Bibliographic Info

    Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2013-23.

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    Length: 22
    Date of creation: Sep 2013
    Date of revision:
    Handle: RePEc:crs:wpaper:2013-23

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    Related research

    Keywords: Hedge Fund; Sharpe Performance; Manager Incentive; Loss Carry Forward; Performance Smoothing;

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    1. Carl Ackermann & Richard McEnally & David Ravenscraft, 1999. "The Performance of Hedge Funds: Risk, Return, and Incentives," Journal of Finance, American Finance Association, vol. 54(3), pages 833-874, 06.
    2. Getmansky, Mila & Lo, Andrew W. & Makarov, Igor, 2004. "An econometric model of serial correlation and illiquidity in hedge fund returns," Journal of Financial Economics, Elsevier, vol. 74(3), pages 529-609, December.
    3. Agarwal, Vikas & Naik, Narayan Y., 2000. "Multi-Period Performance Persistence Analysis of Hedge Funds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(03), pages 327-342, September.
    4. Brown, Stephen J & Goetzmann, William N & Ibbotson, Roger G, 1999. "Offshore Hedge Funds: Survival and Performance, 1989-95," The Journal of Business, University of Chicago Press, vol. 72(1), pages 91-117, January.
    5. Bollen, Nicolas P. B. & Pool, Veronika K., 2008. "Conditional Return Smoothing in the Hedge Fund Industry," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(02), pages 267-298, June.
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