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

  • Serge Darolles

    ()

    (Université Paris-Dauphine et CREST)

  • Christian Gouriéroux

    ()

    (CREST et Université de Toronto)

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 Water Mark Scheme, these complex performance allocation strategies might explain empirical facts observed in hedge fund returns, such as return persistence, skewed return distribution, bias ratio, or implied increasing risk appetite

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Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2013-22.

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Length: 31
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:crs:wpaper:2013-22
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  17. Fung, William & Hsieh, David A., 1999. "A primer on hedge funds," Journal of Empirical Finance, Elsevier, vol. 6(3), pages 309-331, September.
  18. George O. Aragon & Vikram Nanda, 2012. "Tournament Behavior in Hedge Funds: High-water Marks, Fund Liquidation, and Managerial Stake," Review of Financial Studies, Society for Financial Studies, vol. 25(3), pages 937-974.
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  21. Vikas Agarwal, 2004. "Risks and Portfolio Decisions Involving Hedge Funds," Review of Financial Studies, Society for Financial Studies, vol. 17(1), pages 63-98.
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