In this paper, we examine the risk characteristics and capital adequacy of hedge funds using Value-at-Risk (VaR) as the criterion for measuring risk and estimating capital requirements. We find that a vast majority of hedge funds are adequately capitalized, with the level of under-capitalization being only 3.1% for live funds and 7.5% for dead funds. Using extreme value theory, we confirm that ...

The regulations governing asset distributions from many retirement plans give plan participants the option to time retirement or rollovers from the plan strategically. They possess a long-lived put option, whose exercise price resets periodically to the current value of the assets in the plan. We derive a recursive closed-form valuation formula for the option, and develop a numerical algorithm ...

Decentralized Investment Management: Evidence from the Pension Fund Industry The past few decades have seen a major shift from centralized to decentralized investment management by pension fund sponsors, despite the increased coordination problems that this brings. Using a unique, proprietary dataset of pension sponsors and managers, we identify two secular decentralization trends: sponsors swi...

The paper shows that the difference in aggregate volatility risk can explain why several anomalies are stronger among the stocks with low institutional ownership (IO). Because of their desire to hedge against aggregate volatility or to exploit their competitive advantage in obtaining and processing information, coupled with the dislike of uncertainty and volatility, institutions tend to stay aw...

As part of the pension reform recently approved in Chile, the government introduced a centralized auction mechanism to provide the Disability and Survivors (D&S) Insurance that covers recent contributors among the more than 8 million participants in the mandatory private pension system. This paper is intended as a case study presenting the main distortions found in the decentralized operation o...

This study examines the performance of actively managed Australian equity funds and the extent to which both fund size and manager size is related to risk-adjusted returns. Larger investment managers, by definition, engage in higher trade volume. The literature documents that transaction costs and trade difficulty increase with trade size, given difficulties associated with ‘large’ trades and t...

Article history: Received 10 October 2014 Received in revised form 2 September 2015 Accepted 3 September 2015 Available online 8 September 2015 This study examines the effects of stock liquidity on firm value and corporate governance using the Real Estate Investment Trust (REIT) setting. The unique features of the REIT industry, including homogeneity of the investment structures, the high payou...

This paper investigates the process determining mutual funds’ conditional probability of closure, i.e., their hazard function. Using a nonparametric approach to estimate the effects of a fund’s age on its hazard rate, we find a distinctly non-linear, inverse U-shaped pattern in the relationship. Hence, young and very old funds are least likely to be closed down. A Ž . fund’s relative performanc...

The incentive contracts of delegated investment managers may have unintended negative consequences for asset prices. I show that managers who are compensated for relative performance optimally shift their portfolio weights towards those of the benchmark when volatility rises, putting downward price pressure on overweight stocks and upward pressure on underweight stocks. In quarters when volatil...