Greed can be dangerous to your Sharpe

Bernd Scherer ()
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Bernd Scherer: FTC Capital GmbH

Journal of Asset Management, 2012, vol. 13, issue 6, No 1, 369-372

Abstract: Abstract Pricing is one of the most delicate decisions in any product offering. We show that a frequent resetting of funds high watermark leads to a sharp drop of risk-adjusted outperformance. In contrast, asset management companies opting in favour of less frequent adjustments to their high watermark effectively release past accumulated profits into loss-making days thereby reducing after fee volatility with a much more modest reduction in SHARPE ratio. Greed is not always good.

Keywords: Sharpe ratio; high watermark; reset period; performance-based fee (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1057/jam.2012.22

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