Advanced Search
MyIDEAS: Login

Equilibrium Prices in the Presence of Delegated Portfolio Management

Contents:

Author Info

  • Cuoco, Domenico
  • Kaniel, Ron
Registered author(s):

    Abstract

    This paper analyzes the asset pricing implications of commonly-used portfolio management contracts linking the compensation of fund managers to the excess return of the managed portfolio over a benchmark portfolio. The contract parameters, the extent of delegation and equilibrium prices are all determined endogenously within the model we consider. Symmetric ("fulcrum") performance fees distort the allocation of managed portfolios in a way that induces a significant and unambiguous positive effect on the prices of the assets included in the benchmark and a negative effect on the Sharpe ratios. Asymmetric performance fees have more complex effects on equilibrium prices and Sharpe ratios, with the signs of these effects fluctuating stochastically over time in response to variations in the funds’ excess performance.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.cepr.org/pubs/dps/DP7453.asp
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7453.

    as in new window
    Length:
    Date of creation: Sep 2009
    Date of revision:
    Handle: RePEc:cpr:ceprdp:7453

    Contact details of provider:
    Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
    Phone: 44 - 20 - 7183 8801
    Fax: 44 - 20 - 7183 8820

    Order Information:
    Email:

    Related research

    Keywords: delegation; equilibrium; fund; portfolio;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Jonathan B. Berk & Richard C. Green, 2004. "Mutual Fund Flows and Performance in Rational Markets," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1269-1295, December.
    2. Anthony W. Lynch & David K. Musto, 2003. "How Investors Interpret Past Fund Returns," Journal of Finance, American Finance Association, vol. 58(5), pages 2033-2058, October.
    3. Jeffrey Wurgler & Ekaterina Zhuravskaya, 2000. "Does Arbitrage Flatten Demand Curves for Stocks?," Yale School of Management Working Papers ysm152, Yale School of Management, revised 01 Nov 2001.
    4. Basak, Suleyman & Pavlova, Anna & Shapiro, Alex, 2006. "Optimal Asset Allocation and Risk Shifting in Money Management," CEPR Discussion Papers 5524, C.E.P.R. Discussion Papers.
    5. Jennifer Carpenter, 1997. "The Optimal Dynamic Investment Policy for a Fund Manager Compensated with an Incentive Fee," New York University, Leonard N. Stern School Finance Department Working Paper Seires 97-11, New York University, Leonard N. Stern School of Business-.
    6. Cvitanic Jaksa & Wan Xuhu & Zhang Jianfeng, 2008. "Principal-Agent Problems with Exit Options," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-43, October.
    7. Kapur, Sandeep & Timmermann, Allan G, 2003. "Relative Performance Evaluation Contracts and Asset Market Equilibrium," CEPR Discussion Papers 4038, C.E.P.R. Discussion Papers.
    8. Cadenillas, Abel & Cvitanic, Jaksa & Zapatero, Fernando, 2007. "Optimal risk-sharing with effort and project choice," Journal of Economic Theory, Elsevier, vol. 133(1), pages 403-440, March.
    9. Palomino, F.A. & Prat, A., 1998. "Risk Taking and Optimal Contracts for Money Managers," Discussion Paper 1998-108, Tilburg University, Center for Economic Research.
    10. Philip H. Dybvig & Heber K. Farnsworth & Jennifer Carpenter, 1999. "Portfolio Performance and Agency," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-046, New York University, Leonard N. Stern School of Business-.
    11. Stracca, Livio, 2005. "Delegated portfolio management: a survey of the theoretical literature," Working Paper Series 0520, European Central Bank.
    12. Pruitt, Stephen W & Wei, K C John, 1989. " Institutional Ownership and Changes in the S&P 500," Journal of Finance, American Finance Association, vol. 44(2), pages 509-13, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:7453. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.