TY - JOUR T1 - Practical Applications of The Moral Hazard Problem in Hedge Funds: <em>A Study of Commodity Trading Advisors</em> JF - Practical Applications SP - 1 LP - 4 DO - 10.3905/pa.2017.5.2.240 VL - 5 IS - 2 AU - Li Cai AU - Marat Molyboga AU - Chris (Cheng) Jiang Y1 - 2017/10/31 UR - https://pm-research.com/content/5/2/1.9.abstract N2 - 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. ER -