Abstract
We analyse the efficacy of hedge fund regulation in a behavioural game-theoretic model consisting of two players: a hedge fund manager and a regulator. The regulator decides whether or not to regulate hedge fund strategies, and location of key service providers (KSPs). The manager then decides (a) which KSP to choose, (b) whether to choose a safe or risky strategy, and (c) how much effort to exert in affecting the strategy’s success probability. We consider the effect of expected future fund flows on the manager’s incentives. Furthermore, we consider economic and behavioural factors affecting the regulator’s decision-making. Finally, we discuss how our two cases (myopic versus far-sighted managerial behaviour) may inform the debate over regulation over the entire financial market-cycle. Overall, our analysis contributes to the debate on hedge fund regulation.
Original language | English |
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Pages (from-to) | 606-629 |
Number of pages | 29 |
Journal | The European Journal of Finance |
Volume | 24 |
Issue number | 7-8 |
Early online date | 3 Aug 2017 |
DOIs | |
Publication status | Published - 2018 |
Keywords
- ability
- effort
- fund flows
- hedge funds
- incentive contracts
- regulation
ASJC Scopus subject areas
- Economics, Econometrics and Finance (miscellaneous)
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Richard Fairchild
- Management - Senior Lecturer (Associate Professor)
- Accounting, Finance & Law
- Centre for Business, Organisations and Society (CBOS)
- Centre for Research in Entrepreneurship and Innovation at Bath
Person: Research & Teaching