Portfolio Delegation Under Short-Selling Constraints
We study delegated portfolio management when the managerÂ´s ability to short-sell is restricted.Contrary to previous results, we show that under moral hazard, linear performance-adjusted contracts do provide portfolio managers with incentives to gather information.We find that the risk-averse managerÂ´s effort is an increasing function of her share in the portfolioÂ´s return.This result affects the risk-averse investorÂ´s choice of contracts.Unlike previous results, the purely risk-sharing contract is now shown to be suboptimal.Using numerical methods we show that under optimal linear contract, managerÂ´s share in the portfolio return is higher than what it is under a purely risk sharing contract
|Date of creation:||Jan 2005|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +34 91 568 96 00
Web page: http://www.ie.edu/esp/claustro/claustro_areas_detalle.asp?id=5
More information through EDIRC
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.:
- Almazan, Andres & Brown, Keith C. & Carlson, Murray & Chapman, David A., 2004. "Why constrain your mutual fund manager?," Journal of Financial Economics, Elsevier, vol. 73(2), pages 289-321, August.
- Heinkel, Robert & Stoughton, Neal M, 1994. "The Dynamics of Portfolio Management Contracts," Review of Financial Studies, Society for Financial Studies, vol. 7(2), pages 351-87.
- Bhattacharya, Sudipto & Pfleiderer, Paul, 1985. "Delegated portfolio management," Journal of Economic Theory, Elsevier, vol. 36(1), pages 1-25, June.
- R. Mehra & E. Prescott, 2010.
"The equity premium: a puzzle,"
Levine's Working Paper Archive
1401, David K. Levine.
- Admati, Anat R & Pfleiderer, Paul, 1997. "Does It All Add Up? Benchmarks and the Compensation of Active Portfolio Managers," The Journal of Business, University of Chicago Press, vol. 70(3), pages 323-50, July.
- Stoughton, Neal M, 1993. " Moral Hazard and the Portfolio Management Problem," Journal of Finance, American Finance Association, vol. 48(5), pages 2009-28, December.
When requesting a correction, please mention this item's handle: RePEc:emp:wpaper:wp05-07. 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: (Amada Marcos)
If references are entirely missing, you can add them using this form.