Double or nothing: Patterns of
equity fund holdings and
transactions
Stephen J. Brown NYU Stern School of Business
David R. Gallagher University of NSW
Onno Steenbeek Erasmus University / ABP
Investments
Peter L. Swan University of NSW
www.stern.nyu.edu/~sbrown
Performance measurement
Leeson
Investment
Managemen
t
Market
Short-term
(S&P 500) Government
Benchmark Benchmark
Average
Return
.0065
.0050
.0036
Std.
Deviation
.0106
.0359
.0015
Beta
.0640
1.0
.0
Alpha
.0025
.0
.0
(1.92)
Arbitrage, 100%
in cash at close
Sharpe Style:
Ratio Index.2484
.0318
.0 of
trading
Frequency distribution of
monthly returns
35
30
25
20
15
10
5
0
% 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0% 0% 0 % 0 % 0 % 0 % 0 %
0
0 .5 .0 .5 1.0 1.5 .0 .5 .0 .5 .0 .5 .0 .5 .0 .5
.
1
2 3
4 5
5 6
2
3 4
0
6
- -0 0
Percentage in cash (monthly)
120%
100%
8 0%
60%
40%
20%
0%
31-Dec-198 9
15-May-1991
26-Sep-1992
8 -Feb-1994
Examples of riskless index
arbitrage …
Percentage in cash (daily)
200%
100%
0%
-100%
-200%
-300%
-400%
-500%
-600%
31-Dec-198 9
15-May-1991
26-Sep-1992
8 -Feb-1994
Apologia of Nick Leeson
“I felt no elation at this success. I was determined to win back
the losses. And as the spring wore on, I traded harder and
harder, risking more and more. I was well down, but
increasingly sure that my doubling up and doubling up would
pay off ... I redoubled my exposure. The risk was that the
market could crumble down, but on this occasion it carried on
upwards ... As the market soared in July [1993] my position
translated from a £6 million loss back into glorious profit.
I was so happy that night I didn’t think I’d ever go through that
kind of tension again. I’d pulled back a large position simply
by holding my nerve ... but first thing on Monday morning I
found that I had to use the 88888 account again ... it became
an addiction”
Nick Leeson Rogue Trader pp.63-64
Sharpe ratio of doublers
0.4
0.3
0.2
0.1
0
-0.1
-0.2
All Doublers
Doublers who have not
yet embezzled
Sharpe Ratio of
Market
Informationless investing
Informationless investing
Zero net investment overlay strategy (Weisman
2002)
Uses only public information
Designed to yield Sharpe ratio greater than benchmark
Why should we care?
Sharpe ratio obviously inappropriate here
Informationless investing
Zero net investment overlay strategy (Weisman
2002)
Uses only public information
Designed to yield Sharpe ratio greater than benchmark
Why should we care?
Sharpe ratio obviously inappropriate here
But is metric of choice of hedge funds and derivatives
traders
We should care!
Agency issues
Fund flow, compensation based on
historical performance
Gruber (1996), Sirri and Tufano (1998),
Del Guercio and Tkac (2002)
Behavioral issues
Strategy leads to certain ruin in the long
term
Examples of Informationless
investing
Doubling
a.k.a. “Convergence trading”
Covered call writing
Unhedged short volatility
Writing out of the money calls and
puts
Forensic Finance
Implications of Informationless
investing
Patterns of returns
Patterns of security holdings
Patterns of trading
Sharpe Ratio of Benchmark
100%
50%
0%
-50%
Benchmark
-100%
-150%
-200%
-50%
0%
50%
Sharpe ratio = .631
100%
Maximum Sharpe Ratio
100%
50%
Benchmark
0%
-50%
Maximum
Sharpe Ratio
Strategy
-100%
-150%
-200%
-50%
0%
50%
Sharpe ratio = .748
100%
Short Volatility Strategy
100%
50%
Benchmark
0%
-50%
-100%
Short
volatility
-150%
-200%
-50%
0%
50%
Sharpe ratio = .743
100%
Doubling
100%
50%
Benchmark
0%
Doubling
(upper 5%)
-50%
-100%
Doubling
(median)
-150%
Doubling
(lower 5%)
-200%
-50%
0%
50%
Sharpe ratio = .046
100%
Doubling (no embezzlement)
100%
50%
Benchmark
0%
Doubling
(upper 5%)
-50%
-100%
Doubling
(median)
-150%
Doubling
(lower 5%)
-200%
-50%
0%
50%
Sharpe ratio = 1.962
100%
Concave trading strategies
100%
50%
Benchmark
0%
Doubling
(median)
-50%
-100%
Maximum
Sharpe Ratio
Strategy
-150%
-200%
-50%
0%
50%
100%
Hedge funds follow concave
strategies
R-rf = α + β (RS&P- rf) + γ (RS&Prf)2
Concave strategies: tβ > 1.96 & tγ < 1.96
Hedge funds follow concave
strategies
R-rf = α + β (RS&P- rf) + γ (RS&PN
Concave Neutral Convex
rf)2
Convertible Arbitrage
Dedicated Short Bias
Emerging Markets
Equity Market Neutral
Event Driven
Fixed Income
Arbitrage
Fund of Funds
Global Macro
Long/Short Equity
Hedge
Managed Futures
Other
Source: TASS/Tremont
5.38%
0.00%
21.89%
1.18%
27.03%
2.38%
16.38%
4.60%
11.19%
2.80%
5.00%
94.62%
100.00%
77.25%
97.06%
72.64%
95.24%
82.06%
91.38%
86.62%
94.17%
91.67%
0.00%
0.00%
0.86%
1.76%
0.34%
2.38%
1.57%
4.02%
2.18%
3.03%
3.33%
130
27
233
170
296
126
574
174
1099
429
60
Portfolio Analytics Database
 36 Australian institutional equity funds managers
 Data on
 Portfolio holdings
 Daily returns
 Aggregate returns
 Fund size
 59 funds (no more than 4 per manager)
 51 active
 3 enhanced index funds
 4 passive
 1 international
Some successful Australian funds
Sharpe
Fund Ratio
1
2
3
16
27
36
0.1017
0.1500
0.1559
0.1079
0.0977
0.1814
Alpha
FF
Alpha
Beta
Skewnes
s
Kurtosi Annual
s
turnover
0.08%
0.10%
0.90
-0.5209
4.6878
20.69
(2.21)
(2.58)
0.16%
0.17%
1.11
0.0834
4.2777
0.79
(6.44)
(5.88)
0.19%
0.20%
1.08
0.7382
7.6540
1.18
(4.09)
(4.36)
0.09%
0.09%
0.96
-0.2558
4.1749
0.34
(2.66)
(2.61)
0.12%
0.11%
1.03
-0.2667
3.4316
1.27
(2.42)
(2.25)
0.29%
0.31%
0.90
-0.6248
5.1278
0.62
(3.02)
(3.06)
Style and return patterns
Treynor
Mazuy
measure
Modified
Henriksson
Merton
measure
Number of
observations
Category
Beta
GARP
0.96347
-0.01105
(-2.30)
-0.08989
(-2.52)
2395
Growth
1.03670
-0.00708
(-1.53)
-0.03762
(-1.15)
1899
Neutral
1.02830
-0.00110
(-0.29)
-0.02092
(-0.71)
1313
Other
1.00670
-0.00196
(-0.53)
0.00676
(0.21)
640
Value
0.76691
-0.01215
(-1.93)
-0.10350
(-2.24)
2250
Passive/
Enhanced
1.01440
0.00692
(1.51)
0.04593
(1.47)
859
Size and return patterns
Largest 10
Institutional
Manager
Boutique
firm
Treynor
Mazuy
measure
Modified
Henriksson
Merton
measure
Number of
observations
Category
Beta
No
0.9627
-0.00645
(-2.25)
-0.05037
(-2.34)
6100
Yes
0.8819
-0.01306
(-2.60)
-0.10095
(-2.92)
2397
No
0.9322
-0.01029
(-3.12)
-0.07616
(-3.23)
5709
Yes
0.9556
-0.00452
(-1.25)
-0.04184
(-1.49)
2788
Incentives and return patterns
Annual
Bonus
Domestic
owned
Equity
Ownership
by
senior
staff
Treynor
Mazuy
measure
Modified
Henriksson
Merton
measure
Number of
observation
s
Category
Beta
No
0.9819
0.00013
(0.03)
0.01233
(0.35)
308
Yes
0.9386
-0.00857
(-3.32)
-0.06720
(-3.56)
8189
No
0.9739
-0.00990
(-2.80)
-0.07282
(-2.79)
4262
Yes
0.9053
-0.00652
(-1.86)
-0.05557
(-2.18)
4235
No
0.9322
-0.01029
(-3.12)
-0.07616
(-3.23)
5709
Yes
0.9556
-0.00452
(-1.25)
-0.04184
(-1.49)
2788
Patterns of derivative holdings
Fund
Investmen
t
Style
Calls
Puts
Month end option positions
Fund
Number
Strike
Number
Strike
1
2
3
4
5
6
11
13
0.726
-0.061
0.099
0.041
-0.650
0.222
0.811
0.054
1.017
1.050
1.017
1.023
1.062
1.076
0.002
1.076
0.395
-0.122
0.021
0.008
-1.346
0.957
0.904
0.952
0.944
0.985
15
16
17
18
-0.033
-0.039
-0.367
-0.059
1.056
1.060
1.067
1.023
Neutral
21
22
24
-0.093
0.567
0.405
Other
25
Value
Passive/
Enhanced
GARP
Growth
0.950
0.674
Concavity
decreasing
100%
29%
59%
77%
Concavity
increasing
71%
41%
23%
100%
100%
100%
100%
27%
Total
80
246
79
898
18
11
8
11
73%
100%
65%
87%
11
8
83
344
0.107
0.108
0.951
0.913
35%
13%
1.038
0.984
0.854
-0.093
0.947
10%
100%
100%
90%
208
10
1
0.079
1.147
0.147
0.965
94%
6%
35
33
0.050
0.914
57%
43%
23
38
39
-0.013
-0.026
0.948
1.036
0.955
0.959
9%
10%
91%
90%
340
613
Total
38%
62%
3027
-0.017
-0.041
Patterns of derivative holdings
Fund
Investmen
t
Style
Calls
Puts
Month end option positions
Fund
Number
Strike
Number
Strike
1
2
3
4
5
6
11
13
0.726
-0.061
0.099
0.041
-0.650
0.222
0.811
0.054
1.017
1.050
1.017
1.023
1.062
1.076
0.002
1.076
0.395
-0.122
0.021
0.008
-1.346
0.957
0.904
0.952
0.944
0.985
15
16
17
18
-0.033
-0.039
-0.367
-0.059
1.056
1.060
1.067
1.023
Neutral
21
22
24
-0.093
0.567
0.405
Other
25
Value
Passive/
Enhanced
GARP
Growth
0.950
0.674
Concavity
decreasing
100%
29%
59%
77%
Concavity
increasing
71%
41%
23%
100%
100%
100%
100%
27%
Total
80
246
79
898
18
11
8
11
73%
100%
65%
87%
11
8
83
344
0.107
0.108
0.951
0.913
35%
13%
1.038
0.984
0.854
-0.093
0.947
10%
100%
100%
90%
208
10
1
0.079
1.147
0.147
0.965
94%
6%
35
33
0.050
0.914
57%
43%
23
38
39
-0.013
-0.026
0.948
1.036
0.955
0.959
9%
10%
91%
90%
340
613
Total
38%
62%
3027
-0.017
-0.041
Patterns of derivative holdings
Fund
Investmen
t
Style
Calls
Puts
Month end option positions
Fund
Number
Strike
Number
Strike
1
2
3
4
5
6
11
13
0.726
-0.061
0.099
0.041
-0.650
0.222
0.811
0.054
1.017
1.050
1.017
1.023
1.062
1.076
0.002
1.076
0.395
-0.122
0.021
0.008
-1.346
0.957
0.904
0.952
0.944
0.985
15
16
17
18
-0.033
-0.039
-0.367
-0.059
1.056
1.060
1.067
1.023
Neutral
21
22
24
-0.093
0.567
0.405
Other
25
Value
Passive/
Enhanced
GARP
Growth
0.950
0.674
Concavity
decreasing
100%
29%
59%
77%
Concavity
increasing
71%
41%
23%
100%
100%
100%
100%
27%
Total
80
246
79
898
18
11
8
11
73%
100%
65%
87%
11
8
83
344
0.107
0.108
0.951
0.913
35%
13%
1.038
0.984
0.854
-0.093
0.947
10%
100%
100%
90%
208
10
1
0.079
1.147
0.147
0.965
94%
6%
35
33
0.050
0.914
57%
43%
23
38
39
-0.013
-0.026
0.948
1.036
0.955
0.959
9%
10%
91%
90%
340
613
Total
38%
62%
3027
-0.017
-0.041
Doubling trades
h0 = S0 – C0
h0 : Initial highwater mark
S0 : Initial stock position
C0 : Cost basis of initial position
Doubling trades
h0 = S0 – C0
Bad news!
S1 = d S0
C1 = (1+rf ) C0
Doubling trades
h0 = S0 – C0
S1
C1
Increase the
= d S0 + 1
equity position
= (1+rf ) C0 + 1
to cover the
loss!
Doubling trades
h0 = S0 – C0
h1 = u S1 – (1+rf) C1
S1 = d S0 + 1
C1 = (1+rf ) C0 + 1
Good news!
1 is set to make up for past losses
and re-establish security position
Doubling trades
h0 = S0 – C0
h1 = u S1 – (1+rf) C1
S1 = d S0 + 1
C1 = (1+rf ) C0 + 1
Good news!
1 is set to make up for past losses
and re-establish security position
1 =
h0 - u d S0 + (1+rf)2 C0
u – (1+rf)
+ S0
Doubling trades
h0 = S0 – C0
Bad news again!
S1 = d S0 + 1
C1 = (1+rf ) C0 + 1
S2 = d S1
C2 = (1+rf ) C1
Doubling trades
h0 = S0 – C0
h2 = u S2 – (1+rf) C
S1 = d S0 + 1
C1 = (1+rf ) C0 + 1
S2 = d S1 + 2
C2 = (1+rf ) C1 + 2
Good news
finally!
Doubling trades
h0 = S0 – C0
h2 = u S2 – (1+rf) C
S1 = d S0 + 1
C1 = (1+rf ) C0 + 1
S2 = d S1 + 2
C2 = (1+rf ) C1 + 2
2 is set to make up for past losses
Good news
and re-establish security position
finally!
2 =
h1 - u d S1+ (1+rf)2 C1
u – (1+rf)
+ S0
Doubling trades
h0 = S0 – C0
Bad news again!
S1 = d S0 + 1
C1 = (1+rf ) C0 + 1
S2 = d S1 + 2
C2 = (1+rf ) C1 + 2
S3 = d S2
C3 = (1+rf ) C2
Doubling trades
h0 = S0 – C0
Bad news again!
S1 = d S0 + 1
C1 = (1+rf ) C0 + 1
S2 = d S1 + 2
C2 = (1+rf ) C1 + 2
S3 = d S2
C3 = (1+rf ) C2
Doubling trades
h0 = S0 – C0
Bad news again!
S1 = d S0 + 1
C1 = (1+rf ) C0 + 1
S2 = d S1 + 2
C2 = (1+rf ) C1 + 2
Doubling trades
h0 = S0 – C0
Bad news again!
S1 = d S0 + 1
C1 = (1+rf ) C0 + 1
S2 = d S1 + 2
C2 = (1+rf ) C1 + 2
Doubling trades
h0 = S0 – C0
Bad news again!
S1 = d S0 + 1
C1 = (1+rf ) C0 + 1
S2 = d S1 + 2
C2 = (1+rf ) C1 + 2
Doubling trades
h0 = S0 – C0
Bad news again!
S1 = d S0 + 1
C1 = (1+rf ) C0 + 1
S2 = d S1 + 2
C2 = (1+rf ) C1 + 2
Doubling trades
h0 = S0 – C0
Bad news again!
S1 = d S0 + 1
C1 = (1+rf ) C0 + 1
S2 = d S1 + 2
C2 = (1+rf ) C1 + 2
Doubling trades
h0 = S0 – C0
Bad news again!
S1 = d S0 + 1
C1 = (1+rf ) C0 + 1
S2 = d S1 + 2
C2 = (1+rf ) C1 + 2
Doubling trades
h0 = S0 – C0
Bad news again!
S1 = d S0 + 1
C1 = (1+rf ) C0 + 1
S2 = d S1 + 2
C2 = (1+rf ) C1 + 2
Observable implication of
doubling
On a loss, trader will increase position
size by
hi-1 - u d Si-1+ (1+rf)2 Ci-1
i =
u – (1+rf)
+ S0
otherwise, position is liquidated on a
gain,
i = a + b1 (1 - i) hi-1 + b2 Vi + b3 Bi + b4 i + b5 G
for all trades
Observable implication of
doubling
On a loss, trader will increase position
size by
hi-1 - u d Si-1+ (1+rf)2 Ci-1
i =
u – (1+rf)
+ S0
otherwise, position is liquidated on a
gain,
i = a + b1 (1 - i) hi-1 + b2 Vi + b3 Bi + b4 i + b5 G
Vi = (1 - i) d Si-1 , the value of security on a los
Observable implication of
doubling
On a loss, trader will increase position
size by
hi-1 - u d Si-1+ (1+rf)2 Ci-1
i =
u – (1+rf)
+ S0
otherwise, position is liquidated on a
gain,
i = a + b1 (1 - i) hi-1 + b2 Vi + b3 Bi + b4 i + b5 G
Bi = (1 - i) (1 + rf ) Ci-1 , the cost basis of the sec
Observable implication of
doubling
On a loss, trader will increase position
size by
hi-1 - u d Si-1+ (1+rf)2 Ci-1
i =
u – (1+rf)
+ S0
otherwise, position is liquidated on a
gain,
i = a + b1 (1 - i) hi-1 + b2 Vi + b3 Bi + b4 i + b5 G
Gi = I (Si – Ci – hi) , the measure of gain once
highwatermark is reached
Observable implication of
doubling
On a loss, trader will increase position
size by
hi-1 - u d Si-1+ (1+rf)2 Ci-1
i =
+ S0
u – (1+rf)
otherwise, position is liquidated on a
gain,
i = a + b1 (1 - i) hi-1 + b2 Vi + b3 Bi + b4 i + b5 G
>0 >0
<0
>0
?
<0
Some successful Australian funds
Sharpe
Fund Ratio
1
2
3
16
27
36
0.1017
0.1500
0.1559
0.1079
0.0977
0.1814
Alpha
FF
Alpha
Beta
Skewnes
s
Kurtosi Annual
s
turnover
0.08%
0.10%
0.90
-0.5209
4.6878
20.69
(2.21)
(2.58)
0.16%
0.17%
1.11
0.0834
4.2777
0.79
(6.44)
(5.88)
0.19%
0.20%
1.08
0.7382
7.6540
1.18
(4.09)
(4.36)
0.09%
0.09%
0.96
-0.2558
4.1749
0.34
(2.66)
(2.61)
0.12%
0.11%
1.03
-0.2667
3.4316
1.27
(2.42)
(2.25)
0.29%
0.31%
0.90
-0.6248
5.1278
0.62
(3.02)
(3.06)
Some successful Australian funds
Fund
Highwater
mark on a
loss
Value of
holdings on
a loss
Cost
basis on a
loss
Value
above
highwater
mark
1
0.0004
-0.0266
0.0327
-0.0119
(0.21)
(-2.39)
(2.19)
(-0.86)
0.0346
-0.1301
0.0300
-0.8614
(2.97)
(-6.45)
(2.29)
(-9.52)
0.0366
-0.1125
0.0216
-0.9771
(2.58)
(-6.02)
(1.57)
(-33.69)
0.6981
-0.9135
0.0167
-0.6133
(0.69)
(-2.06)
(0.13)
(-0.91)
-0.0712
-0.3305
-0.1205
-1.3277
(-0.71)
(-4.18)
(-2.02)
(-2.32)
-0.0226
-0.0973
-0.0935
-1.0166
(-0.55)
(-2.38)
(-2.08)
(-2.52)
2
3
16
27
36
Rsq
0.0442
0.3924
0.6098
0.1406
0.3930
0.3947
Sharpe ratio and doubling
Sharpe ratio of weekly returns
0.25
0.2
0.15
0.1
0.05
0
-8
-6
-4
-2
0
t -value of value on a loss
2
4
6
Do managers lack an equity
stake?
Sharpe ratio of weekly returns
0.25
0.2
0.15
0.1
0.05
0
-8
-6
-4
-2
0
t -value of value on a loss
2
4
6
Is fund owned by a bank or life
insurance company?
Sharpe ratio of weekly returns
0.25
0.2
0.15
0.1
0.05
0
-8
-6
-4
-2
0
t -value of value on a loss
2
4
6
Is fund one of 10 largest in
Australia?
Sharpe ratio of weekly returns
0.25
0.2
0.15
0.1
0.05
0
-8
-6
-4
-2
0
t -value of value on a loss
2
4
6
Is fund large (not a boutique
manager)?
Sharpe ratio of weekly returns
0.25
0.2
0.15
0.1
0.05
0
-8
-6
-4
-2
0
t -value of value on a loss
2
4
6
Style and return patterns
Treynor
Mazuy
measure
Modified
Henriksson
Merton
measure
Number of
observations
Category
Beta
GARP
0.96347
-0.01105
(-2.30)
-0.08989
(-2.52)
2395
Growth
1.03670
-0.00708
(-1.53)
-0.03762
(-1.15)
1899
Neutral
1.02830
-0.00110
(-0.29)
-0.02092
(-0.71)
1313
Other
1.00670
-0.00196
(-0.53)
0.00676
(0.21)
640
Value
0.76691
-0.01215
(-1.93)
-0.10350
(-2.24)
2250
Passive/
Enhanced
1.01440
0.00692
(1.51)
0.04593
(1.47)
859
Style and trading patterns
Category
GARP
Growth
Neutral
Other
Value
Passive/
Enhanced
Highwater
mark on a
loss
Value of
holdings
on a loss
Cost basis
on a loss
Value
above
highwater
mark
0.0086
-0.0584
0.0028
-0.7957
(2.45)
(-7.93)
(0.58)
(-5.30)
0.0352
0.0291
-0.0498
-0.3429
(1.04)
(0.99)
(-1.66)
(-0.92)
0.0005
-0.0208
0.0035
-0.2161
(0.07)
(-1.89)
(0.35)
(-3.69)
0.0277
-0.0242
-0.0074
-0.0712
(1.84)
(-1.75)
(-0.60)
(-0.60)
-0.0006
0.0081
-0.0104
-0.1172
(-0.07)
(0.88)
(-1.28)
(-1.85)
0.0901
-0.0769
0.0535
-0.2307
(2.06)
(-1.54)
(1.61)
(-0.98)
Rsq
0.4281
0.1339
0.0341
0.0586
0.0113
0.0089
Size and return patterns
Largest 10
Institutional
Manager
Boutique
firm
Treynor
Mazuy
measure
Modified
Henriksson
Merton
measure
Number of
observations
Category
Beta
No
0.9627
-0.00645
(-2.25)
-0.05037
(-2.34)
6100
Yes
0.8819
-0.01306
(-2.60)
-0.10095
(-2.92)
2397
No
0.9322
-0.01029
(-3.12)
-0.07616
(-3.23)
5709
Yes
0.9556
-0.00452
(-1.25)
-0.04184
(-1.49)
2788
Size and trading patterns
Largest 10
Institutional
Manager
Category
Highwater
mark on a
loss
Value of
holdings
on a loss
Cost
Basis
Value
above
highwater
mark
No
0.0384
0.0250
-0.0443
-0.4393
(1.36)
(0.92)
(-1.62)
(-1.26)
0.0077
-0.0159
0.0011
-0.7627
(2.05)
(-3.01)
(0.24)
(-4.82)
0.0015
-0.0040
-0.0093
-0.7502
(0.24)
(-0.44)
(-1.03)
(-4.75)
0.0097
-0.0270
-0.0184
-0.2847
(0.66)
(-1.42)
(-1.07)
(-4.23)
Yes
Boutique
firm
No
Yes
Rsq
0.0630
0.3017
0.1607
0.0751
Incentives and return patterns
Annual
Bonus
Domestic
owned
Equity
Ownership
by
senior
staff
Treynor
Mazuy
measure
Modified
Henriksson
Merton
measure
Number of
observation
s
Category
Beta
No
0.9819
0.00013
(0.03)
0.01233
(0.35)
308
Yes
0.9386
-0.00857
(-3.32)
-0.06720
(-3.56)
8189
No
0.9739
-0.00990
(-2.80)
-0.07282
(-2.79)
4262
Yes
0.9053
-0.00652
(-1.86)
-0.05557
(-2.18)
4235
No
0.9322
-0.01029
(-3.12)
-0.07616
(-3.23)
5709
Yes
0.9556
-0.00452
(-1.25)
-0.04184
(-1.49)
2788
Incentives and return patterns
Categor
y
Annual
Bonus
No
Yes
Domestic
owned
No
Yes
Equity
No
Ownership
by senior
Yes
staff
Highwate
r
mark on
a loss
Value of
holdings
on a loss
0.0259
-0.0233
-0.0026
0.0388
(1.52)
(-1.55)
(-0.20)
(0.25)
0.0016
-0.0040
-0.0093
-0.7493
(0.25)
(-0.45)
(-1.04)
(-4.74)
0.0025
0.0265
-0.0395
-0.0756
(0.48)
(1.24)
(-1.57)
(-0.95)
0.0148
-0.0228
0.0069
-0.9023
(2.21)
(-2.79)
(0.99)
(-12.68)
0.0015
-0.0040
-0.0093
-0.7502
(0.24)
(-0.44)
(-1.03)
(-4.75)
0.0097
-0.0270
-0.0184
-0.2847
(0.66)
(-1.42)
(-1.07)
(-4.23)
Cost
Basis
Value
above
highwate
r
Rsq
0.0420
0.1601
0.1229
0.2063
0.1607
0.0751
National Australia Bank
Incentives are not everything!
No evidence of doubling in asset
allocation
Large institutional funds are organized
and compensated on a specialist team
basis
Behavioral explanations:
Prospect theory
Conclusion
Informationless investing can be dangerous to
your financial health
Funds as a whole do not seem to use these
techniques
However, some of most successful funds have
interesting trading patterns … associated with
Large, decentralized control
Short term incentive compensation