Makarov, Igor and Plantin, Guillaume (2015) Rewarding Trading Skills without Inducing Gambling. Journal of Finance, vol. 70 (n°3). pp. 952-962.
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Abstract
This paper develops a model of active asset management in which fund managers may forego alpha-generating strategies, preferring instead to make negative-alpha trades that enable them temporarily to manipulate investors' perceptions of their skills. We show that such trades are optimally generated by taking on hidden-tail risk, and that they are more likely to occur when fund managers are impatient, and when their trading skills are scalable and generate a high profit per unit of risk. We propose long-term contracts that deter this behavior by dynamically adjusting the dates on which the manager is compensated in response to her cumulative performance.
Item Type: | Article |
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Language: | English |
Date: | June 2015 |
Refereed: | Yes |
Subjects: | B- ECONOMIE ET FINANCE |
Divisions: | TSE-R (Toulouse), TSM Research (Toulouse) |
Site: | UT1 |
Date Deposited: | 16 Mar 2015 14:49 |
Last Modified: | 02 Apr 2021 15:49 |
OAI Identifier: | oai:tse-fr.eu:28366 |
URI: | https://publications.ut-capitole.fr/id/eprint/16542 |