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Flows, Performance, and Managerial Incentives in Hedge Funds

44 Pages Posted: 3 Nov 2003  

Vikas Agarwal

Georgia State University; University of Cologne - Centre for Financial Research (CFR)

Naveen D. Daniel

Drexel University - Department of Finance

Narayan Y. Naik

London Business School - Institute of Finance and Accounting

Date Written: July 22, 2004

Abstract

This paper investigates the determinants of money-flows, nature of managerial incentives, behavior of investors, and drivers of performance in the hedge fund industry. It examines performance-flow relation and finds that funds with good recent performance, greater managerial incentives, and lower impediments to capital withdrawals experience higher money-flows. It also analyzes how current money-flows relate to future performance and finds that larger funds with greater inflows are associated with poorer future performance, a result consistent with decreasing returns to scale. It also finds that funds with greater managerial incentives are associated with superior future performance, justifying investors' preference for funds with higher managerial incentives.

Suggested Citation

Agarwal, Vikas and Daniel, Naveen D. and Naik, Narayan Y., Flows, Performance, and Managerial Incentives in Hedge Funds (July 22, 2004). EFA 2003 Annual Conference Paper No. 501. Available at SSRN: https://ssrn.com/abstract=424369 or http://dx.doi.org/10.2139/ssrn.424369

Vikas Agarwal (Contact Author)

Georgia State University ( email )

35 Broad Street,
Suite 1221
Atlanta, GA 30303-3083
United States
404-413-7326 (Phone)
404-413-7312 (Fax)

HOME PAGE: http://www.gsu.edu/~fncvaa

University of Cologne - Centre for Financial Research (CFR)

Albertus-Magnus Platz
Cologne, 50923
Germany

Naveen D. Daniel

Drexel University - Department of Finance ( email )

LeBow College of Business
Philadelphia, PA 19104
United States
215-895-5858 (Phone)
215-895-2955 (Fax)

HOME PAGE: http://lebow.drexel.edu/Faculty/DanielN

Narayan Y. Naik

London Business School - Institute of Finance and Accounting ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
+44 20 7262 5050 (Phone)
+44 20 724 3317 (Fax)

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