Why do investors entrust active mutual fund managers with large sums of money while receiving negative excess returns … on average? Our explanation is that investors have a coarser information set than fund managers which leads them to … systematically misinterpret managers' skill. When investors are unable to correctly quantify risk because they have no knowledge of …

Private equity funds hold assets that are hard to value. Managers may have an incentive to distort reported valuations … underperforming managers inflate reported returns during times when fundraising takes place. However, those managers are less likely …

Compensation of private equity fund managers typically consists of a fixed management fee and a performance related … carried interest which entitles managers to option-like payoffs. We consider whether this structure tends to reward excessive … buyout funds, our results demonstrate that managers indeed have an incentive for excessive risk-taking in case only fee …