On the optimal strategy for the hedge fund manager:An experimental investigation

This paper examines the empirical validity of Nicolosi’s optimal strategy for a hedge fund manager under a specific payment contract. The contract specifies that the manager’s payment consists of a fixed payment and a variable payment, which is a performance-based payment. The model assumes that the...

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Autor principal:	Yudistira Permana
Formato:	article
Lenguaje:	EN
Publicado:	Taylor & Francis Group 2020
Materias:	fund manager portfolio strategy laboratory experiment Business HF5001-6182 Management. Industrial management HD28-70
Acceso en línea:	https://doaj.org/article/aaff0d1bb07a4fb9bcd6922786f713ca
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spelling	oai:doaj.org-article:aaff0d1bb07a4fb9bcd6922786f713ca2021-12-02T14:41:55ZOn the optimal strategy for the hedge fund manager:An experimental investigation2331-197510.1080/23311975.2020.1833407https://doaj.org/article/aaff0d1bb07a4fb9bcd6922786f713ca2020-01-01T00:00:00Zhttp://dx.doi.org/10.1080/23311975.2020.1833407https://doaj.org/toc/2331-1975This paper examines the empirical validity of Nicolosi’s optimal strategy for a hedge fund manager under a specific payment contract. The contract specifies that the manager’s payment consists of a fixed payment and a variable payment, which is a performance-based payment. The model assumes that the manager is an Expected Utility agent who maximises his/her expected utility by buying and selling the asset at appropriate moments. Nicolosi derives the optimal strategy for the manager by assuming a Black-Scholes setting where the manager can invest either in an asset or in a money account. The asset price follows geometric Brownian motion and the money account has a constant interest rate. I experimentally test Nicolosi’s optimal strategy to investigate whether the agents invest according to the optimal strategy. To meet the aim of this paper, I compare the empirical support of the optimal strategy with other possible strategies. The results show that Nicolosi’s optimal strategy receives strong empirical support for explaining the subjects’ behaviour, though not all of the subjects follow the optimal strategy. Having said this, it seems that the subjects somehow follow the intuitive prediction of Nicolosi’s optimal strategy in which the decision-maker responds to the difference between the managed portfolio and the benchmark to determine the portfolio allocation.Yudistira PermanaTaylor & Francis Grouparticlefund managerportfolio strategylaboratory experimentBusinessHF5001-6182Management. Industrial managementHD28-70ENCogent Business & Management, Vol 7, Iss 1 (2020)
institution	DOAJ
collection	DOAJ
language	EN
topic	fund manager portfolio strategy laboratory experiment Business HF5001-6182 Management. Industrial management HD28-70
spellingShingle	fund manager portfolio strategy laboratory experiment Business HF5001-6182 Management. Industrial management HD28-70 Yudistira Permana On the optimal strategy for the hedge fund manager:An experimental investigation
description	This paper examines the empirical validity of Nicolosi’s optimal strategy for a hedge fund manager under a specific payment contract. The contract specifies that the manager’s payment consists of a fixed payment and a variable payment, which is a performance-based payment. The model assumes that the manager is an Expected Utility agent who maximises his/her expected utility by buying and selling the asset at appropriate moments. Nicolosi derives the optimal strategy for the manager by assuming a Black-Scholes setting where the manager can invest either in an asset or in a money account. The asset price follows geometric Brownian motion and the money account has a constant interest rate. I experimentally test Nicolosi’s optimal strategy to investigate whether the agents invest according to the optimal strategy. To meet the aim of this paper, I compare the empirical support of the optimal strategy with other possible strategies. The results show that Nicolosi’s optimal strategy receives strong empirical support for explaining the subjects’ behaviour, though not all of the subjects follow the optimal strategy. Having said this, it seems that the subjects somehow follow the intuitive prediction of Nicolosi’s optimal strategy in which the decision-maker responds to the difference between the managed portfolio and the benchmark to determine the portfolio allocation.
format	article
author	Yudistira Permana
author_facet	Yudistira Permana
author_sort	Yudistira Permana
title	On the optimal strategy for the hedge fund manager:An experimental investigation
title_short	On the optimal strategy for the hedge fund manager:An experimental investigation
title_full	On the optimal strategy for the hedge fund manager:An experimental investigation
title_fullStr	On the optimal strategy for the hedge fund manager:An experimental investigation
title_full_unstemmed	On the optimal strategy for the hedge fund manager:An experimental investigation
title_sort	on the optimal strategy for the hedge fund manager:an experimental investigation
publisher	Taylor & Francis Group
publishDate	2020
url	https://doaj.org/article/aaff0d1bb07a4fb9bcd6922786f713ca
work_keys_str_mv	AT yudistirapermana ontheoptimalstrategyforthehedgefundmanageranexperimentalinvestigation
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On the optimal strategy for the hedge fund manager:An experimental investigation

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