How the Financial Managers’ Remuneration Can Affect the Optimal Portfolio Composition ?
AbstractIn this paper we analyse the problem of an investor who must decide whether to manage his wealth by himself or give it in outsourcing. Financial managers are supposed to charge a commission composed of a fixed (A) and a variable (x) part, both deducted from portfolio payoffs. We demonstrate that the optimal portfolio composition crucially depends on the magnitude of A and x. We make a general analysis of this dependence and, in particular, we show that high level of A (respectively, x) lead to an outsourced portfolio which has a lower (respectively, higher) risk-return profile with respect to the self-managed portfolio.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2002022.
Date of creation: 01 Jun 2002
Date of revision:
optimal portfolio; outsourcing; managers’remuneration;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-12-02 (All new papers)
- NEP-CFN-2002-12-02 (Corporate Finance)
- NEP-FIN-2002-12-02 (Finance)
- NEP-IFN-2002-12-02 (International Finance)
- NEP-RMG-2002-12-02 (Risk Management)
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