Robust leverage decision under locked wealth and high-water mark contract

Luo, Deqing; Wu, Xiaoping; Xu, Jiawen; Yan, Jingzhou

doi:10.1016/j.frl.2021.102428

Finance Research Letters

2022

DOI: 10.1016/j.frl.2021.102428

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Robust leverage decision under locked wealth and high-water mark contract

Deqing Luo

Xiaoping Wu

Jiawen Xu

et al.

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Cited by 9 publications

(1 citation statement)

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“…By assuming the presence of idiosyncratic risk, Luo et al. ( 2022 ) find that increasing ambiguity aversion against the idiosyncratic risk raises the fund manager’s private risk taking.…”

mentioning

confidence: 99%

Robust risk choice under high-water mark contract

Yan

Yang

2023

Rev Quant Finan Acc

Self Cite

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By assuming that a risk-neutral hedge fund manager has ambiguous beliefs about the return process of risky asset, we study his robust risk choice under the high-water mark. The results show that without management fees, ambiguity aversion induces the manager to take more risk as the fund is close to the termination but take less risk as the fund approaches the high-water mark. With management fees, ambiguity aversion increases the induced risk aversion and moderates the manager’s incentive to take risk, predicting that it is the manager with higher rates of management fees that reduces the risky asset holdings more when he becomes less confident and/or more pessimistic about the future returns. The model implies that managers’ ambiguity aversion is a possible factor explaining hedge fund activities in stock markets during the financial crisis of 2007–2009 and in US Treasury markets during COVID-19 crisis. Finally, taxation is taken into account.

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“…By assuming the presence of idiosyncratic risk, Luo et al. ( 2022 ) find that increasing ambiguity aversion against the idiosyncratic risk raises the fund manager’s private risk taking.…”

mentioning

confidence: 99%

Robust risk choice under high-water mark contract

Yan

Yang

2023

Rev Quant Finan Acc

Self Cite

View full text Add to dashboard Cite

show abstract

Sustainable investment under ESG volatility and ambiguity

Luo,

Shan,

Yan

et al. 2023

Economic Modelling

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Robust leverage choice of hedge funds with rare disasters

Yan

et al. 2023

Finance Research Letters

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Robust leverage decision under locked wealth and high-water mark contract

Cited by 9 publications

References 20 publications

Robust risk choice under high-water mark contract

Robust risk choice under high-water mark contract

Sustainable investment under ESG volatility and ambiguity

Robust leverage choice of hedge funds with rare disasters

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