Performance measures and incentives: Loading negative coskewness to outperform the CAPM
نویسنده
چکیده
This study examines the incentives in fund management due to the adoption of speci c performance measures. A mean-variance measure such as Jensens alpha incentivizes fund managers to load negative coskewness risk. This risk is shown to be priced in the UK stock market during the period January 1991December 2005, bearing a premium of 2.09% p.a. Hence, a new performance measure, the intercept of the Harvey-Siddique two-factor asset pricing model is proposed to be more appropriate for prudent investors. Using this model, the performance of UK equity unit trusts is examined for the same period. Though managers exhibited signi cantly negative ability, they were correctly responding to their incentives, loading negative coskewness and reaping part of the corresponding premium. JEL Classi cation: G12, G23
منابع مشابه
The Coskewness Puzzle and Stochastic Discount Factor Volatility
In this paper, we propose a novel test of the 3M-CAPM under a positivity constraint on the estimated stochastic discount factor (SDF) and, more importantly, an upper bound on its volatility. The positivity constraint rules out arbitrage opportunities, while the restriction on SDF volatility rules out unduly large Sharpe ratios and is based on a sensible upper bound on investors’ risk aversion. ...
متن کاملInstitutional Skewness Preferences and the Idiosyncratic Skewness Premium∗
This study examines whether idiosyncratic skewness preferences of institutional investors influence stock returns. On aggregate, institutions exhibit an aversion for idiosyncratic skewness but prefer systematic skewness, and in the cross-section, larger (smaller) and more (less) diversified institutions exhibit stronger (weaker) aversion for idiosyncratic skewness. The aggregate institutional p...
متن کاملOn Empirical Risk Measurement With Asymmetric Returns Data
By formulating a nested test of the asymmetric response model of Bawa, Brown, and Klein (1981), the mean-lower partial moment CAPM (LPMCAPM) of Bawa and Lindenberg (1977) and the mean-variance CAPM of Sharpe (1963, 1964), Lintner (1965) and Mossin (1969), this paper investigates the relative merits of symmetric and asymmetric risk measures using UK equity data for di®erently sized companies and...
متن کاملTake the Money and Run: The Challenges of Designing and Evaluating Financial Incentives in Healthcare; Comment on “Paying for Performance in Healthcare Organisations”
Many countries are turning their attention to the use of explicit financial incentives to drive desired improvements in healthcare performance. However, we have only a weak evidence-base to inform policy in this area. The research challenge is to generate robust evidence on what financial incentives work, under what circumstances, for whom and with what intended and unintended consequences.
متن کاملAuthority, Risk, and Performance Incentives: Evidence Fromdivisionmanager Positions inside Firms
I show that performance incentives vary by decision-making authority of division managers. For division managers with broader authority, i.e., those designated as corporate officers, both the sensitivity of pay to global performance measures and the relative importance of global to local measures are larger, relative to non-officers. There is no difference in sensitivity of pay to local measure...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
عنوان ژورنال:
دوره شماره
صفحات -
تاریخ انتشار 2007