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Li, J., B. Liu, J. Yang, and Z. Zou(邹镇涛):Hedge fund’s dynamic leverage decisions under time-inconsistent preferences
时间:2020-06-28    点击数:

[Abstract]We extend the continuous-time hedge fund framework to model the dynamic leverage choice of a hedge fund manager with time-inconsistent preferences. While time-inconsistency discourages the manager from investing when facing high liquidation risk, the payment of incentive fees may induce a time-inconsistent manager to be more aggressive with leverage. For the special case with no management fees, we derive the closed-form solutions and find that a time-inconsistent manager always chooses higher leverage than a time-consistent manager. The impact on the dynamic leverage strategy also depends on such factors as whether managers are sophisticated or naive in their expectations regarding future time-inconsistent behavior.

[Keywords]FinanceHedge fundLeverageTime-inconsistent preferencesManagement fees and incentive fees

本文于2020年7月在线刊登在European Journal of Operational Research上,该期刊为经济与管理学院B+类奖励期刊。