This article provides empirical support for the theory that closed-end fund discounts reflect expected investment performance. Evidence is presented to explain how equity closed-end fund initial public offerings (IPOs) can sell at a premium when existing funds sell at a discount and why the...

This paper proposes that, and explains why, hedge profits and regression approach hedge ratios should be calculated using cost-of-carry-adjusted price changes. This Modified Regression Method for determining hedge ratios is denoted MRM. The paper discusses the Error-Correction Model for hedge...

A levered investment in the S&P 500, with the leverage chosen to achieve a beta of 1.5, would have outperformed the index itself by 150 basis points annually over the 1928-83 period. Unfortunately, the risk incurred by such a strategy is generally unacceptable to even aggressive investors. There...

A widespread concern in the investment industry is whether commonly used investment management fee arrangements encourage investment managers to act in their clients' interests. The value to managers of a one-period call performance fee is maximized by maximizing performance volatility. This is...

This paper provides a new paradigm for thinking about performance fees. Closed-form expressions for the value and expected value of the performance fee for a popular generic structure are presented. The expected fee is decomposed into earned and unearned components. Suggestions for reducing the...

Risk-neutral valuation is used to value a portfolio and decompose it into the components accruing to its stakeholders. The analysis incorporates managers' expected performance and contract renewal issues. A managed portfolio's economic value is shown to differ from its net asset value. A better...

In contrast to some recent research, this article finds that regression approach futures hedge ratios are stationary. It shows that a previous study's failure to reject the random walk null hypothesis was due to its small sample size and the overlapping hedge ratio calculation approach's bias...

Fundamental stock analysts covering the insurance industry may be overly influenced by infrequent large scale catastrophes, such as unusually strong hurricanes. It is important for these analysts to be able to put catastrophes in financial perspective in order to set an appropriate fair value on...

Ideally, an index fund should provide the best possible tradeoff between expected return and risk for the investor who has no research advantage. A number of practical problems arise, however, when one attempts to translate this ideal into practice. Even in the absence of a research advantage, a...