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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26663
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| Title: | THE VALUATION OF MUTUAL FUND CONTRACTS |
| Authors: | Boudoukh, Jacob
Richardson, Matthew
Stanton, Richard
Whitelaw, Robert |
| Issue Date: | 22-May-2003 |
| Series/Report no.: | SC-AM-03-09 |
| Abstract: | Combining insights from the contingent claims and the asset-backed
securities literatures, we study the economics of value creation in the
asset management business. In particular, we provide a theoretical model
and a closed form formula for the value of fund fees in the presence of
the well known flow-performance relation, giving rise to interesting
nonlinearities and volatility-related effects. The theoretical model
sheds light on the role of fees, asset growth, asset and benchmark
volatility, and the intensity of the flow-performance relation. To
better understand the role of changing fund characteristics such as age
and size on the fund value and fund risk, we estimate the empirical
relation between returns and flows conditional on these characteristics
for various asset classes. We study these effects using Monte Carlo
simulations for various economically meaningful parameter values for
specific asset classes. Measuring value as a fraction of assets under
management, we find that both value and risk, systematic and
idiosyncratic, decline in size and age. In addition, value is a complex,
non-monotonic function of the fee charged on the fund. |
| URI: | http://hdl.handle.net/2451/26663 |
| Appears in Collections: | Asset Management
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