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Money Doctors

  • Nicola Gennaioli
  • Andrei Shleifer
  • Robert Vishny

We present a new model of investors delegating portfolio management to professionals based on trust.� Trust in the manager reduces an investor?s perception of the riskiness of a given investment, and allows managers to charge fees.� Money managers compete for investor funds by setting fees, but because of trust fees do not fall to costs.� In equilibrium, fees are higher for assets with higher expected return, managers on average underperform the market net of fees, but investors nevertheless prefer to hire managers to investing on their own.� When investors hold biased expectations, trust causes managers to pander to investor beliefs.�

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Paper provided by Harvard University OpenScholar in its series Working Paper with number 69721.

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Handle: RePEc:qsh:wpaper:69721
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