scholarly journals Fund Managers, Career Concerns, and Asset Price Volatility

2012 ◽  
Vol 102 (5) ◽  
pp. 1986-2017 ◽  
Author(s):  
Veronica Guerrieri ◽  
Péter Kondor
Keyword(s):  
Portfolio Management ◽  
Default Risk ◽  
Asset Price ◽  
Price Volatility ◽  
Career Concerns ◽  
Past Performance ◽  
Fund Managers ◽  
Risky Bonds ◽  
Delegated Portfolio Management ◽  
Changes Over Time

We propose a model of delegated portfolio management with career concerns. Investors hire fund managers to invest their capital either in risky bonds or in riskless assets. Some managers have superior information on default risk. Based on past performance, investors update beliefs on managers and make firing decisions. This leads to career concerns that affect managers' investment decisions, generating a countercyclical “reputational premium.” When default risk is high, return on bonds is high to compensate uninformed managers for the high risk of being fired. As default risk changes over time, the reputational premium amplifies price volatility. (JEL G11, G12, G23, L84)

Herding and Delegated Portfolio Management: The Impact of Relative Performance Evaluation on Asset Allocation

2011 ◽  
Vol 01 (02) ◽  
pp. 265-292 ◽  
Author(s):  
Ernst Maug ◽  
Narayan Naik
Keyword(s):  
Performance Evaluation ◽  
Portfolio Management ◽  
Asset Allocation ◽  
Relative Performance ◽  
Optimal Contracts ◽  
Fund Managers ◽  
Portfolio Managers ◽  
Delegated Portfolio Management ◽  
The Impact ◽  
Allocation Decisions

This paper investigates the effect of fund managers' performance evaluation on their asset allocation decisions. We derive optimal contracts for delegated portfolio management and show that they always contain relative performance elements. We then show that this biases fund managers to deviate from return-maximizing portfolio allocations and follow those of their benchmark (herding). In many cases, the trustees of the fund who employ the fund manager prefer such a policy. We also show that fund managers in some situations ignore their own superior information and "go with the flow" in order to reduce deviations from their benchmark. We conclude that incentive provisions for portfolio managers are an important factor in their asset allocation decisions.

How Does Illiquidity Affect Delegated Portfolio Choice?

2018 ◽  
Vol 54 (2) ◽  
pp. 539-585 ◽  
Author(s):  
Min Dai ◽  
Luis Goncalves-Pinto ◽  
Jing Xu
Keyword(s):  
Portfolio Choice ◽  
Portfolio Management ◽  
Mutual Fund ◽  
Causal Effects ◽  
Mutual Fund Managers ◽  
Exogenous Shock ◽  
Empirical Results ◽  
Fund Managers ◽  
Delegated Portfolio Management

In response to how they are compensated, mutual fund managers who are underperforming by mid-year are likely to increase the risk of their portfolios toward the year-end. We argue that an increase in the liquidity of the stocks that managers use to shift risk can lead to an increase in the size of their risky bets. This in turn hurts fund investors by increasing the costs of misaligned incentives associated with delegated portfolio management. We provide both theoretical and empirical results that are consistent with this argument. We use decimalization as an exogenous shock to liquidity to identify causal effects.

Fifty years of UK asset price volatility

2000 ◽  
Vol 2 (3) ◽  
pp. 63-77 ◽  
Author(s):  
Nicola Anderson ◽  
Francis Breedon
Keyword(s):  
Asset Price ◽  
Price Volatility
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