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The Democratization of Wealth Management: Hedged Mutual Fund Blockchain Protocol

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  • Kashyap, Ravi

Abstract

We develop several innovations to bring the best practices of traditional investment funds to the blockchain landscape. Specifically, we illustrate how: (1) fund prices can be updated regularly like mutual funds; (2) performance fees can be charged like hedge funds; (3) mutually hedged blockchain investment funds can operate with investor protection schemes, such as high water marks; and (4) measures to offset trading related slippage costs when redemptions happen. Using our concepts – and blockchain technology – traditional funds can calculate performance fees in a simplified manner and alleviate several operational issues. Blockchain can solve many problems for traditional finance, while tried and tested wealth management techniques can benefit decentralization, speeding its adoption. We provide detailed steps – including mathematical formulations and instructive pointers – to implement these ideas and discuss how our designs overcome several blockchain bottlenecks, making smart contracts smarter. We provide numerical illustrations of several scenarios related to our mechanisms.

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  • Kashyap, Ravi, 2024. "The Democratization of Wealth Management: Hedged Mutual Fund Blockchain Protocol," Research in International Business and Finance, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:riibaf:v:71:y:2024:i:c:s0275531924002800
    DOI: 10.1016/j.ribaf.2024.102487
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    More about this item

    Keywords

    Performance fees; High water mark; Asset price; Blockchain; Smart contract; Investor protection; Investment fund;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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