PT  - JOURNAL ARTICLE
AU  - Li Cai
AU  - Marat Molyboga
AU  - Chris (Cheng) Jiang
TI  - Practical Applications of The Moral Hazard Problem in Hedge Funds: <em>A Study of Commodity Trading Advisors</em>
AID  - 10.3905/pa.2017.5.2.240
DP  - 2017 Oct 31
TA  - Practical Applications
PG  - 1--4
VI  - 5
IP  - 2
4099  - https://pm-research.com/content/5/2/1.9.short
4100  - https://pm-research.com/content/5/2/1.9.full
AB  - Research shows that poorly performing hedge funds tend to engage in risk-shifting behavior—increasing volatility—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—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' risk-adjusted returns.