Type
Article
Titre
Rewarding Trading Skills Without Inducing Gambling
Dans
Journal of Finance, The (AFA)
Auteur(s)
MAKAROV Igor - Sloan School of Management (Auteur)
PLANTIN Guillaume - Département d'économie (Auteur)
Volume
70
Numéro
3
Pages
925 - 962 p.
ISSN
00221082
DOI
10.1111/jofi.12257
Mots clés
Trading skills, Active asset maagement, Financial strategies
Résumé
EN
This paper develops a model of active asset management in which fund managers may forgo alpha-generating strategies, preferring instead to make negative-alpha trades that enable them to temporarily manipulate investors' perceptions of their skills. We show that such trades are optimally generated by taking on hidden tail risk, and 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.

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