Fee Structure and Equity Fund Manager's Optimal Locking in Profits Strategy

David Dickinson, Xuyuan Han, Zhenya Liu and Yaosong Zhan
Additional contact information
David Dickinson: University of Birmingham [Birmingham]
Zhenya Liu: Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School
Yaosong Zhan: NSYSU - National Sun Yat-sen University

Post-Print from HAL

Abstract: We study the effects of fee structures on fund managers' strategies for locking in profits. Utilizing the optimal stopping time method, we identify two critical portfolio value thresholds that signal when a manager will choose to lock in profits. Fee components such as management fees, self-investment ratios, and high-water marks significantly influence these decisions. Specifically, higher management fees are associated with increased risk aversion, leading to a narrower continuation region, indicating a preference for lower risk. Conversely, performance fees encourage greater risk-taking. We use the S&P 500 Index and NASDAQ Composite index as representatives of managers' portfolios and apply our model to illustrate how managers adjust their profit-locking strategies in response to their desired rewards.

Date: 2024
References: Add references at CitEc
Citations:

Published in International Review of Financial Analysis, 2024, 96, ⟨10.1016/j.irfa.2024.103611⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04876523

DOI: 10.1016/j.irfa.2024.103611

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().