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My Kingdom for a Horse: Resolving Conflicts of Interest in Asset Management

Listed author(s):
  • Boyle, Glenn
  • Guthrie, Graeme
  • Gorton, Luke
Registered author(s):

    Racehorse trainers operate asset management businesses in which the assets owned by outside clients compete with those owned by managers for the latter's time care and attention. Although this potentially leads to serious conflicts of interest we find no evidence of an agency problem: in a sample of 8000 racehorses and their associated stables client-owned horses perform no worse than trainer-owned horses on average. However this outcome is not uniform across stables: the average performance advantage of client-owned horses over their trainer-owned counterparts is positive in big stables where client-owners provide much of the trainer's income but is negative in small stables with relatively few outside clients. Agents with more to lose apparently behave better.

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    File URL: http://researcharchive.vuw.ac.nz/handle/10063/3834
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    Paper provided by Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation in its series Working Paper Series with number 3834.

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    Date of creation: 2006
    Handle: RePEc:vuw:vuwcsr:3834
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    ISCR, PO Box 600, Victoria University Wellington 6140, New Zealand

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    Web page: http://www.iscr.co.nz/
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    1. Steven D. Levitt & Chad Syverson, 2008. "Market Distortions When Agents Are Better Informed: The Value of Information in Real Estate Transactions," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 599-611, November.
    2. Williams, Joseph T, 1998. "Agency and Brokerage of Real Assets in Competitive Equilibrium," Review of Financial Studies, Society for Financial Studies, vol. 11(2), pages 239-280.
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    4. Raymond D. Sauer, 1998. "The Economics of Wagering Markets," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2021-2064, December.
    5. Rutherford, R.C. & Springer, T.M. & Yavas, A., 2005. "Conflicts between principals and agents: evidence from residential brokerage," Journal of Financial Economics, Elsevier, vol. 76(3), pages 627-665, June.
    6. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    7. Gompers, Paul & Lerner, Josh, 1999. "Conflict of Interest in the Issuance of Public Securities: Evidence from Venture Capital," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 1-28, April.
    8. Hurley, William & McDonough, Lawrence, 1995. "A Note on the Hayek Hypothesis and the Favorite-Longshot Bias in Parimutuel Betting," American Economic Review, American Economic Association, vol. 85(4), pages 949-955, September.
    9. Telser, L G, 1980. "A Theory of Self-enforcing Agreements," The Journal of Business, University of Chicago Press, vol. 53(1), pages 27-44, January.
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