Abstract
The purpose of this paper is to investigate the abnormal returns achieved by institutional investors. Distinguishing between institutional investors operating with a specific mandate to invest and those that operate their own choices independently from such a specific delegation, we show that the former achieve higher abnormal returns than the latter. The conceptual explanation of this result is attributable to the use of the fundamental analysis that the first type of institutional investors realized in a higher and more effective way than the second. This different approach in selecting securities might be due to the relationship between the institutional investor and the savers who provided capital. This different agency relationship might have been reflected in the institutional investor's investment policies through the agent behaviour, which changes depending on the nature of the principal who has given the mandate. The empirical analysis has been conducted on a sample of 5,500 institutional investors operating all around the world in 2014, drawing data from institutional investor's annual report, from their investment relations and from Bloomberg, Thomson Reuters, Bankscope, Eurostat and through Computer Assisted Telephone Interviews.
Highlights
Contractual relations are the heart of all economic activities
This paper investigates the abnormal returns achieved by institutional investors, distinguishing them according to the more or less specific mandated to invest that has been received by savers who provided them the capital
We argue that the type of agency relationship explains the more effective use of fundamental analysis and the abnormal return achieved by institutional investors
Summary
Contractual relations are the heart of all economic activities. Contracts have been the centre of many theoretical analyses since the time of Adam Smith. The reason why the contract is an important tool for understanding economic phenomena, is related to the greater or lesser capacity to regulate relations between subjects who might have different interests and, at the same time, act in a more or less direct and cooperative relationship (Hart, Holmstrom, 2016). In this type of contract, if both parties tend to maximize their own utility function, there are good reasons to believe that the agent does not always behave in the best interests for the principal. For this reason, agency costs may arise and authors lead back them to three categories: monitoring expenditure by the principal, bonding expenditures by the agent and residual loss
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
