Incomplete Contracts, Price, and Quality: Hedge Funds' Fees and Performance

25 Pages Posted: 28 Apr 2020

See all articles by Marian W. Moszoro

Marian W. Moszoro

Warsaw School of Economics (SGH); International Monetary Fund (IMF); George Mason University - Department of Economics; George Mason University - Interdisciplinary Center for Economic Science (ICES)

Date Written: April 5, 2020

Abstract

When sellers set the price for ex-ante unobservable and ex-post unenforceable quality, price signals credence quality. Hedge funds resemble incomplete long-term contracts for credence goods under buyer-determined auctions. I show that hedge funds' ability to solicit investments at higher management fees signals their capacity to generate higher net returns. This result is more pronounced during bust cycles and closer to financial hubs, i.e., when management quality signaling is more valuable.

Keywords: Pricing and Performance, Incomplete Contracts, Reciprocity, Hedge Funds

JEL Classification: L14, L15, G11, G41

Suggested Citation

Moszoro, Marian W., Incomplete Contracts, Price, and Quality: Hedge Funds' Fees and Performance (April 5, 2020). Available at SSRN: https://ssrn.com/abstract=3569317 or http://dx.doi.org/10.2139/ssrn.3569317

Marian W. Moszoro (Contact Author)

Warsaw School of Economics (SGH) ( email )

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

HOME PAGE: http://economics.gmu.edu/people/mmoszoro

George Mason University - Interdisciplinary Center for Economic Science (ICES) ( email )

400P Truland Building
George Mason University
Fairfax, VA 22030
United States

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