IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

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

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: Crest working paper version
Download Restriction: no

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

in new window

Length: 31
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:crs:wpaper:2013-22
Contact details of provider: Postal: 15 Boulevard Gabriel Peri 92245 Malakoff Cedex
Phone: 01 41 17 60 81
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Antonio Diez De Los Rios & René Garcia, 2011. "Assessing and valuing the nonlinear structure of hedge fund returns," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(2), pages 193-212, March.
  2. Nelson, Daniel B., 1990. "Stationarity and Persistence in the GARCH(1,1) Model," Econometric Theory, Cambridge University Press, vol. 6(03), pages 318-334, September.
  3. Jackwerth, Jens Carsten & Hodder, James E., 2006. "Incentive Contracts and Hedge Fund Management," MPRA Paper 11632, University Library of Munich, Germany.
  4. Lawrence R. Glosten & Ravi Jagannathan, 1993. "A contingent claim approach to performance evaluation," Staff Report 159, Federal Reserve Bank of Minneapolis.
  5. Chevalier, Judith & Ellison, Glenn, 1997. "Risk Taking by Mutual Funds as a Response to Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1167-1200, December.
  6. Henriksson, Roy D & Merton, Robert C, 1981. "On Market Timing and Investment Performance. II. Statistical Procedures for Evaluating Forecasting Skills," The Journal of Business, University of Chicago Press, vol. 54(4), pages 513-33, October.
  7. Stavros Panageas & Mark M. Westerfield, 2009. "High-Water Marks: High Risk Appetites? Convex Compensation, Long Horizons, and Portfolio Choice," Journal of Finance, American Finance Association, vol. 64(1), pages 1-36, 02.
  8. Darolles, Serge & Gourieroux, Christian & Jasiak, Joann, 2009. "L-performance with an application to hedge funds," Journal of Empirical Finance, Elsevier, vol. 16(4), pages 671-685, September.
  9. 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.
  10. Vikas Agarwal, 2004. "Risks and Portfolio Decisions Involving Hedge Funds," Review of Financial Studies, Society for Financial Studies, vol. 17(1), pages 63-98.
  11. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
  12. Nicolas P.B. Bollen & Veronika K. Pool, 2009. "Do Hedge Fund Managers Misreport Returns? Evidence from the Pooled Distribution," Journal of Finance, American Finance Association, vol. 64(5), pages 2257-2288, October.
  13. Getmansky, Mila & Lo, Andrew & Makarov, Igor, 2003. "An Econometric Model of Serial Correlation and Illiquidity In Hedge Fund Returns," Working papers 4288-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  14. 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.
  15. Edwin J. Elton & Martin J. Gruber & Christopher R. Blake, 2003. "Incentive Fees and Mutual Funds," Journal of Finance, American Finance Association, vol. 58(2), pages 779-804, 04.
  16. Jennifer N. Carpenter, 2000. "Does Option Compensation Increase Managerial Risk Appetite?," Journal of Finance, American Finance Association, vol. 55(5), pages 2311-2331, October.
  17. Stephen A. Ross, 2004. "Compensation, Incentives, and the Duality of Risk Aversion and Riskiness," Journal of Finance, American Finance Association, vol. 59(1), pages 207-225, 02.
  18. William Goetzmann & Jonathan Ingersoll & Stephen Ross, 1998. "High-Water Marks and Hedge Fund Management Contracts," Yale School of Management Working Papers ysm81, Yale School of Management, revised 01 Aug 2001.
  19. Vikas Agarwal & Naveen D. Daniel & Narayan Y. Naik, 2011. "Do Hedge Funds Manage Their Reported Returns?," Review of Financial Studies, Society for Financial Studies, vol. 24(10), pages 3281-3320.
  20. Kouwenberg, Roy & Ziemba, William T., 2007. "Incentives and risk taking in hedge funds," Journal of Banking & Finance, Elsevier, vol. 31(11), pages 3291-3310, November.
  21. Fung, William & Hsieh, David A., 1999. "A primer on hedge funds," Journal of Empirical Finance, Elsevier, vol. 6(3), pages 309-331, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:crs:wpaper:2013-22. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Florian Sallaberry)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.