Download or read book A Model of Asset Pricing and Portfolio Delegation written by Navneet Arora and published by . This book was released on 2002 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: Previous analysis of equilibrium asset prices often ignore the effects of delegated portfolio management and those of delegated portfolio management problems often ignore information and equilibrium asset prices. This paper develops a dynamic model that simultaneously considers optimal contracting and equilibrium asset prices under differential information. We consider a case in which investors can contract on various signals as well as a case in which investors constrain the contract form to be of a linear function of the terminal value of their portfolios. Optimal contracts and equilibrium asset prices are characterized in both cases. We examine the impact of portfolio delegation and risk sharing on portfolio managers' trading behavior, the autocorrelation in stock returns, and the persistence of fund performance. We find that due to the less optimal risk sharing contract, the risk premium on the stock as well as the autocorrelations in both stock and fund returns are substantially higher in case 1 than in case 2. In particular, we find that under certain conditions, the autocorrelations in fund returns are positive, suggesting the persistence of fund performance. The presence of differential information among funds reduces autocorrelations in stock and fund returns, but the costs associated with managing the portfolio enhance them.

Download or read book Asset Pricing Implications of Delegated Portfolio Management and Benchmarking written by Philippe Rohner and published by Cuvillier Verlag. This book was released on 2010-06-11 with total page 210 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book A Delegated Agent Asset Pricing Model written by Bradford Cornell and published by . This book was released on 2004 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: Asset pricing theory has traditionally made predictions about risk and return but has been silent on the actual process of investment. Many, if not most investors, delegate major investment decisions to professionals, to investment managers and financial advisors. This suggests that the instructions given by investors to their delegated agents and the compensation of those agents might be important determinants of capital market equilibrium. In the extreme when all investment decisions are delegated, the preferences and beliefs of individuals would be completely superseded by the objective functions of agent/managers. Agency theory holds that such objective functions cannot be isomorphic to principals' preferences and beliefs, which suggests that asset pricing could differ fundamentally from that predicted by existing theory. A provocative illustration of the difference is provided in this paper based on active asset management relative to a benchmark index, a common objective function in practice but with no grounding in traditional theory. With the growing preponderance of delegated investing, future asset pricing theory will not only have to describe risk and return but, to be complete, must also be able to explain the observed objective functions used by professional managers.

Download or read book Auctioning Off the Agendaexperiments on Asset Pricing Under Delegated Portfolio Management written by Elena Asparouhova and published by . This book was released on 2010 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Delegated Portfolio Management and Optimal Contracting written by Raymond Chi Wai Leung and published by . This book was released on 2016 with total page 234 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation is a compilation of three papers that investigate the role of optimal contracting in a delegated portfolio management setting. While the study of optimal contracts in classical principal-agent setup has been extensively studied, relatively few have been studied in the context of delegated portfolio management in finance. And even delegated portfolio management papers in finance, there are still several open questions and unresolved issues that are beyond the scope of a standard principal-agent problem. In Chapter 1, I study a continuous-time principal-agent problem with drift and stochastic volatility control. While the problem with drift-only control by an agent has been extensively studied recently, very few existing papers allow an agent to endogenously influence volatility. Endogenous volatility control is particularly important in delegated portfolio management settings as volatility is one of the defining aspects of modern financial portfolio management. In Chapter 2, I study a model that encompasses dynamic agency, delegated portfolio management and asset pricing. Traditionally, the fields of ``asset pricing'' and ``corporate finance'' are studied independently of each other. However, as the modern portfolio management industry blooms in size and influence, the role of the portfolio manager and the contracts that are extended to them arguably has a role in the securities that they invest in, and hence in equilibrium, the asset pricing implications of the market overall. This paper is an attempt to bridge ``asset pricing'' and ``corporate finance'' (specifically interpreted to mean delegated portfolio management contracting) into one. In Chapter 3, I study whether a principal investor is better off delegating most of his money to a single portfolio manager (centralized delegation), as opposed to multiple portfolio managers (decentralized delegation), especially when there is the possible presence of moral hazard. With the size of the hedge fund industry and growing empirical support that moral hazard is a growing risk among hedge fund managers, it becomes imperative to understand when an investor decides to delegate his money, should it be delegated in a more centralized or decentralized fashion.

Download or read book The Relative Asset Pricing Model Incorporating Liabilities and Delegation to Chief Investment Officers written by Arun Muralidhar and published by . This book was released on 2015 with total page 15 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper makes a simple but bold argument that because mean-variance optimization (MVO) and the capital asset pricing model (CAPM) were derived from a theoretical construct rather than reality, they represent a specialized case of a more general theory. We suggest a theory based on the liability to be serviced by an investment portfolio that is managed by a delegated decision maker. From this perspective, all decisions are relative; hence we present a relative asset pricing model (RAPM) as the true starting point for asset pricing theory. RAPM accommodates the fact that real investors are concerned about the relative return of their portfolios (relative mean) and the relative risk of their portfolios (composed of two independent variables -- relative variance and correlation). Moreover, investors are concerned about their agents' skill to generate alpha. Turning off these features gives us CAPM; hence our claim that CAPM is a stylized model of a more general theory. Because current theory was derived from the assumptions that investors are concerned about their absolute wealth and that they know the return distribution, which is characterized by mean and variance, it misses an important part of real-life decision making. When investors are concerned about the relative return of their portfolios and do not know the return distribution that is generated by their agents, correlation matters in addition to mean and variance. Therefore investment decision making will occur in three-dimensional space rather than the meanvariance two-dimensional plane. A decision maker forced to choose only two of three or more independent variables would get a limited result. This is exactly what happens with investment theory. This paper provides the foundation for adding a correlation dimension. We hope that other talented academics will help develop RAPM, which will provide better recommendations for asset pricing, asset allocation, rebalancing, risk-adjusted performance calculations, and manager compensation.

Download or read book Dynamic Agency Delegated Portfolio Management and Asset Pricing written by Raymond C. W. Leung and published by . This book was released on 2014 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study a dynamic contracting problem in continuous-time dynamically complete market general equilibrium, whereby an investor must delegate all his portfolio choice problems to a manager. This framework is one of the first attempts to attack a combined dynamic contracting and dynamic asset pricing problem. The portfolio manager can exert costly private monitoring effort costs to increase the expected dividend growth rate of a representative firm. The investor can only observe the dividends of the firm over time, and will consider a pie sharing rule contract over the dividends of consumption goods to dynamically incentivize the manager. The key result is that dynamic moral hazard and dynamic optimal contracting endogenously generates stochastic volatility in the asset returns, and substantial state varying stochasticity in the market price of risk and the risk free rate; this is in sharp contrast to an economy without the presence of agency and dynamic contracts where the market price of risk, risk free rate and asset volatility are all constant. Our results raise the question whether a traditionally viewed "idiosyncratic" risk, namely incentives and compensation contracts of fund managers, are priced in that they do affect asset pricing in equilibrium.

Download or read book Agency Based Asset Pricing and the Beta Anomaly written by David Blitz and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: I argue that delegated portfolio management can cause the equilibrium relation between CAPM beta and expected stock returns to become flat, instead of linearly positive, and propose an alternative to the widely used Fama and French (1993) 3-factor asset pricing model which incorporates this agency effect. An empirical comparison of the two models shows that the agency-based 3-factor model is much better at explaining the performance of portfolios sorted on beta or volatility, and at least as good at explaining the performance of various other test portfolios, including those the original 3-factor model was designed to explain.

Download or read book Equilibrium Prices in the Presence of Delegated Portfolio Management written by Domenico Cuoco and published by . This book was released on 2011 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper analyzes asset pricing implications of commonly used performance fees linking the compensation of fund managers to the return of the managed portfolio relative to that of a benchmark portfolio. Symmetric(fulcrum) performance fees distort the allocation of managed portfolios in a way that induces a significant positive effect on the equilibrium prices of stocks included in the benchmark portfolio, a significant negative effect on their equilibrium Sharpe ratios, and a small positive effect on their equilibrium volatilities: these implications of the model are consistent with the available empirical evidence. For Asymmetric performance fees, the signs of differentials between equilibrium stock prices, Sharpe ratios and volatilities of stocks included in the benchmark portfolio and stocks excluded from the benchmark fluctuate stochastically over time, as funds performance relative to the benchmark varies.

Download or read book Essays on Delegated Portfolio Management and Asset Prices written by Yūki Satō and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Delegated Portfolio Management Optimal Fee Contracts and Asset Prices written by Yuki Sato and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Equilibrium Implications of Delegated Asset Management Under Benchmarking written by Markus Leippold and published by . This book was released on 2012 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Despite the enormous growth of the asset management industry during the past decades, little is known about the asset pricing implications of investment intermediaries. Standard models of investment theory do not address the distinction between individual and institutional investors nor the potential implications of direct investing and delegated investing. In a model with endogenous delegation, we find that delegation leads to a more informative price system and lower equity premia. In the presence of relative return objectives, stocks exhibiting high correlations with the benchmark have significantly lower returns than stocks with low correlations. Our empirical results support the model's predictions.

Download or read book Asset Pricing and Portfolio Performance written by Robert A. Korajczyk and published by . This book was released on 1999 with total page 424 pages. Available in PDF, EPUB and Kindle. Book excerpt: A comprehensive reference work presenting an original framework for evaluating observed differences in returns across assets.

Download or read book Experts in Financial Markets written by Raluca Toma and published by . This book was released on 2018 with total page 93 pages. Available in PDF, EPUB and Kindle. Book excerpt: Thèse. HEC. 2018

Download or read book Modern Portfolio Theory the Capital Asset Pricing Model and Arbitrage Pricing Theory written by Diana R. Harrington and published by Prentice Hall. This book was released on 1987 with total page 242 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Delegated Portfolio Management Benchmarking and the Effects on Financial Markets written by Ms.Deniz Igan and published by International Monetary Fund. This book was released on 2015-09-08 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze the implications of linking the compensation of fund managers to the return of their portfolio relative to that of a benchmark—a common solution to the agency problem in delegated portfolio management. In the presence of such relativeperformance- based objectives, investors have reduced expected utility but markets are typically more informative and deeper. Furthermore, in a multiple asset/market framework we show that (i) relative performance concerns lead to an increase in the correlation between markets (financial contagion); (ii) benchmark inclusion increases price volatility; (iii) home bias emerges as a rational outcome. When information is costly, information acquisition is hindered and this attenuates the effects on informativeness and depth of the market.

Download or read book A Model of Portfolio Delegation and Strategic Trading written by Albert S. Kyle and published by . This book was released on 2010 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper endogenizes information acquisition and portfolio delegation in a one-period strategic trading model. The equilibrium concept constrains prices, demands, and contracts to be linear functions. We find that when the informed portfolio manager is relatively risk tolerant (averse), price informativeness increases (decreases) with the amount of noise trading. Our results differ from those obtained in the traditional market microstructure literature, in which price informativeness is independent of or decreases with the amount of noise trading. When noise trading is endogenized, the linear equilibrium in the traditional literature breaks down under a wide range of parameter values regarding the number, the risk aversion, and the endowment risk of noise traders. In contrast, a linear equilibrium always exists in our model. In a conventional portfolio delegation model under a competitive partial equilibrium, the manager's effort of acquiring information is independent of a linear incentive contract. In our strategic trading model, however, a higher powered linear contract induces the manager to exert more effort for information acquisition, but the manager's trading intensity can be either higher or lower.