Abstract
We model the effect of the standard high-water-mark provision of hedge funds when the supply of capital is competitive and managerial ability is uncertain.. We find that confidence in a manager’s ability is crucial to the provision’s effect, and this eff ect is to boost the initial fund size, and to depress initial expected returns while increasing subsequent expected returns. We also find that expected returns can be non-monotonic in past returns, higher for somewhat poor returns than above or below, that flows can be unresponsive to performance, and that fund size decreases with the manager’s effort cost.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
