Relative portfolio performance evaluation and incentive structure

    Authors

    Y. K. Choi

    Comments

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    Abbreviated Journal Title

    J. Bus.

    Keywords

    MUTUAL FUND PERFORMANCE; NONPARAMETRIC APPROACH; COSTLY INFORMATION; MORAL HAZARD; MARKET LINE; EFFICIENCY; BENCHMARKS; CONTRACTS; INDUSTRY; MANAGERS; Business

    Abstract

    Mutual fund managers are the agents of investors, and their efforts to improve their performance are influenced by either explicit or implicit incentive structures within fund organizations. An efficient fund evaluation should control for organizational elements that affect managerial incentives in evaluating their performance. I propose an incentive-compatible portfolio performance evaluation measure in which managers are to maximize investors' gross returns net of managerial compensation. I consider the effect of organizational elements such as economies of scale on incentive and thus on performance. Finally, I compare this new measure with the Sharpe ratio.

    Journal Title

    Journal of Business

    Volume

    79

    Issue/Number

    2

    Publication Date

    1-1-2006

    Document Type

    Article

    Language

    English

    First Page

    903

    Last Page

    921

    WOS Identifier

    WOS:000235536800016

    ISSN

    0021-9398

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