Makarov, Igor and Plantin, Guillaume (2015) Rewarding Trading Skills without Inducing Gambling. Journal of Finance, vol. 70 (n°3). pp. 952-962.

[thumbnail of RiskShifting-2014June18JF.pdf]
Preview
Text
Download (2MB) | Preview
Identification Number : 10.1111/jofi.12257

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
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
View Item

Downloads

Downloads per month over past year