@article {Cai1, author = {Li Cai and Marat Molyboga and Chris (Cheng) Jiang}, title = {Practical Applications of The Moral Hazard Problem in Hedge Funds: A Study of Commodity Trading Advisors }, volume = {5}, number = {2}, pages = {1--4}, year = {2017}, doi = {10.3905/pa.2017.5.2.240}, publisher = {Institutional Investor Journals Umbrella}, abstract = {Research shows that poorly performing hedge funds tend to engage in risk-shifting behavior{\textemdash}increasing volatility{\textemdash}to boost returns and, in turn, performance fees, especially when fee structures contain triggers such as high-water marks. In The Moral Hazard Problem in Hedge Funds: A Study of Commodity Trading Advisors , Li Cai , Chris (Cheng) Jiang, and Marat Molyboga demonstrate that the market environment affects risk-shifting behavior among hedge funds{\textemdash}less risk-shifting behavior occurs in unfavorable market environments, and vice versa. The study also provides new evidence linking investment strategy and risk choices. The authors find that although risk-shifting behavior can increase fees for managers, it lowers investors{\textquoteright} risk-adjusted returns.}, issn = {2329-0196}, URL = {https://pa.pm-research.com/content/5/2/1.9}, eprint = {https://pa.pm-research.com/content/5/2/1.9.full.pdf}, journal = {Practical Applications} }