Agency-based asset pricing
AbstractWe study an infinite-horizon Lucas tree model where a manager is hired to tend to the trees and is compensated with a fraction of the treesʼ output. The manager trades shares with investors and makes an effort that determines the distribution of the output. When the manager is less (more) risk-averse than the investors, managerial trading results in a less (more) volatile stock price and a lower (higher) risk premium. Trading between the manager and investors acts as an indirect renegotiation mechanism that dynamically modulates the managerʼs incentives and allocates risk and return, but its effectiveness is limited with dispersed small investors.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Theory.
Volume (Year): 149 (2014)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/622869
Moral hazard; Managerial trading; Risk-sharing; Asset pricing;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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