This study examines whether the standard compensation contract in the hedge fund industry aligns managers' incentives with investors' interests. I show empirically that managers' compensation increases when fund assets grow, even when diseconomies of scale in fund performance exist. Thus,...

This chapter provides a perspective on the rapidly developing literature on investment performance evaluation. I use the stochastic discount factor approach to present and critique current performance measurement techniques in a unified setting. I offer a number of suggestions to improve...

The main purpose of the study is to reveal how accurate Sharpe's style analysis model is in the context of the analysis of funds of hedge funds. Therefore, we analyse the influence of the three parameters of a style analysis model, which are defined by the user: the number of indices which are...

Hedge fund managers differ in ability and investors want to distinguish good ones from bad. Via the design of their investment strategies, better fund managers want to ease this inference problem while worse fund managers want to complicate it. We impose only the minimal restrictions on the...