Futures+_CTAs_+Returns

Futures+_CTAs_+Returns - Conditions for Survival Changing...

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1 Conditions for Survival Changing risk and the performance of hedge fund managers and CTAs Stephen Brown NYU Stern School of Business William N. Goetzmann Yale School of Management James Park PARADIGM Capital Management, Inc. 1999 Asia Pacific Finance Association Conference Melbourne July 13, 1999
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2 Overview ± Incentives provided by manager contracts ± Variance strategies ± Threat of closure ± Reputation costs limit incentive to gamble
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3 High Water Marks ± Performance-based ± percentage of “profits” ± Asymmetric ± 2% fixed, 20% above high water mark ± Carry-over losses
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4 Hedge Funds and CTAs ± High water mark contracts ± Unlike mutual funds ± most mutual funds have fixed fees ± some symmetric performance fees ± Like real estate and venture capital funds
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5 Incentives ± Theory: asymmetry is like a call option ± Starks (1987) [high $ ] ± Grinblatt and Titman (1989) [high F ] ± Carpenter (1997) [conditional F ] ± Empirical evidence: ± Brown, Harlow and Starks (1996) ± Only symmetric contracts: mutual funds
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Futures+_CTAs_+Returns - Conditions for Survival Changing...

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