Incentive or performance fees for money managers are frequently accompanied by high-water mark provisions which condition the payment of the performance fee upon exceeding the maximum achieved share value. In this paper, we show that hedge fund performance fees are valuable to money managers, and conversely represent a claim on a significant proportion of investor wealth. The high-water mark provisions in these contracts limit the value of the performance fees. We provide a closed-form solution to the high-water mark

High-Water Marks and Hedge Fund Management Contracts

Mutual Fund Herding and the Impact on Stock Prices

Asymmetric bank lending channels and ECB monetary policy

. This paper analyzes the functioning of monetary policy transmission mechanisms in Italy from 1984 to 1998, highlighting the role performed by the credit system. We extend the Bernanke and Blinder model (1988) to the case of an open economy under a quasi-fixed exchange rate regime, deriving analytically the conditions for the functioning of the three monetary policy channels generally identified in the literature (‘money’, ‘exchange rate’ and ‘credit’). These conditions explain the partial effectiveness of monetary policy in achieving price and income targets, while maintaining external equilibrium. By means of a structural VECM analysis, we evaluate the effectiveness of the transmission of monetary policy through the three channels.

The Bernanke and Blinder Model in an Open Economy: The Italyn Case

In this paper, we first derive a theoretical model in which bank loans rates are assumed to be determined by the cost of loans (re)financing. We consider that imperfect competition prevails on the credit market and that banks determine the (re-)financing structure of the loans they grant by maximizing their profit, taking account of the loans demand elasticity. This model is then estimated using a panel of French banks. The estimation results indicate that banks get the necessary resources to refinance their loans, by decreasing importance, from the monetary market, from the financial market and from interest-bearings deposits. An increase of one point in the monetary base rate is shown to have an impact of about 0.8 point on banks loans rate.

La relation entre le taux des crédits et le coût des resspurces bancaires. Modélisation et estimation sur données individuelles de banques

This paper addresses the traditional Lakonishok, Shleifer and Vishny (LSV) herding measure and points out its lack of internal consistency. Frey, Herbst and Walter (2007) have shown by empirical simulations that LSV is biased. We provide a formal explanation of this bias and propose a more appropriate measure of herding. We then turn to the properties of the new indicator proposed by Frey, Herbst and Walter (2007): we show that it is accurate only under very strong assumptions, and propose a corrected version of their indicator. We also show that the real herding value is within an interval bounded by LSV and FHW. Finally, as both corrected measures require a prior knowledge of some parameters of the distribution, we conclude that measuring accurately herding intensity is a much more difficult task than considered up to now in the empirical literature.

/pdf/measuring-herding-intensity-a-hard-task-hb2fwbpv81.pdf

Measuring Herding Intensity: A Hard Task

Nous cherchons a tester l'existence d'un canal du credit en France depuis la dereglementation financiere. Nous tentons d'analyser l'influence de la politique monetaire sur les ecarts entre taux des credits bancaires et taux monetaires ; d'autre part, on analyse le contenu en information de ces ecarts sur l'evolution du PIB. Nous montrons que les banques lissent au lieu de les amplifier les variations des taux monetaires. De plus, les ecarts entre taux des credits bancaires et taux de marche contiennent de l'information sur l'activite future. Au total, nos tests ne permettent pas de valider une influence de la politique monetaire sur l'activite par le canal du credit.

Le canal du crédit en France depuis la déréglementation financière : quelques tests exploratoires.

Cet article etudie la relation entre les flux nets et la rentabilite relative des fonds actions francais pendant la periode 1992-2007. En utilisant la methode des doubles clusters, on montre qu’il existe une relation convexe entre les flux nets et le rang de performance d’un fonds pour l’annee precedente. Ainsi, au sein des fonds « stars », le rang de performance influence positivement l’attractivite du fonds, alors que pour les fonds de performance relative moyenne ou faible il n’y a pas d’effet des performances passees. Nous montrons egalement que les classements des fonds se fondent vraisemblablement sur des horizons courts, au sein de categories distinguant seulement la specialisation geographique des fonds et que le risque individuel des fonds ne semble pas affecter ces choix. Toutefois, la relation flux performance est quantitativement et qualitativement moins marquee que dans le cas americain, ce qui traduit probablement les specificites francaises en matiere de distribution des fonds. Comme dans le cas americain, la convexite est plus importante pour les « jeunes » fonds. Enfin, la convexite n’apparait que dans les segments les moins specialises du marche (France et Europe).

https://halshs.archives-ouvertes.fr/halshs-00451026/document

La relation entre flux d entrées nets et performance des fonds : une étude appliquée au cas des OPCVM actions français

Using the herding measures of Lakonishok, Shleifer and Vishny (1992) (LSV) and Frey, Herbst and Walter (2007) (FHW), we assess herding by French equity mutual funds between 1999 and 2005. We show that LSV herding amounts to 6.5% while FHW herding is about 2.5 times stronger. We observe that herding is stronger in small than in medium and large capitalization firms. Herding is also more severe among foreign than among UE-15 or French stocks. Moreover, French mutual funds are shown to partially use positive feedback strategies. Finally, we obtain that sell-herding have a destabilizing impact on stock prices.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1966068_code681466.pdf?abstractid=1966068&mirid=1&type=2

Institutional Herding in Stock Markets: Empirical Evidence from French Mutual Funds

Using the traditional herding measure of Lakonishok, Shleifer and Vishny (1992) (LSV) and the more recent measure of Frey, Herbst and Walter (2007) (FHW), we assess herding by French equity mutual funds between 1999 and 2005. We show that LSV herding amounts to 6.5%, while FHW herding is approximately 2.5 times stronger. We find that herding is stronger in small capitalisation firms than in medium- and large capitalisation firms. Herding is also more severe among foreign stocks than among EU-15 or French stocks. Moreover, French mutual funds are shown to partially use positive feedback strategies. Finally, we establish that sell-herding has a destabilising impact on stock prices and that this impact is larger for foreign stocks.

Herding in French stock markets: Empirical evidence from equity mutual funds

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