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How Do Principal-Agent Effects in Delegated Portfolio Management Affect Asset Prices?
Courant Institute of Mathematical Sciences, New York University, New York, USA
- 1 Courant Institute of Mathematical Sciences, New York University, New York, USA
Journal of Mathematical Finance·Volume 03 (2013)·Pages 407–415·Published 17 October 2013·DOI10.4236/jmf.2013.34042
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Abstract
We investigate the impact of delegated portfolio management on asset prices in a noisy rational equilibrium model. Asset prices in our model are linear in fund managers’ private signals and in realized supply shocks. We show that equilibrium expected returns 1) decrease as the proportion of fund managers increase in the economy ; 2) decrease as the precision of fund managers’ signals increase ’ and 3) increase as the fund managers’ contingent fees increase.
KeywordsDelegated Portfolio ManagementPortfolio ChoiceAsset PricingNoisy Rational Expectations Equilibrium
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