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.
Highlights
Today, most investors delegate their investment decisions to financial professionals
The model presented in this paper is inspired by the single-security noisy rational expectations equilibrium of [15,16,17]
Our main contribution is in using a noisy rational expectations equilibrium framework to study the impact of delegated portfolio management on asset prices
Summary
Most investors delegate their investment decisions to financial professionals. The noisy rational expectations framework of [15,16,17] inspires our model This framework centers on the idea that uninformed agents use the equilibrium asset price as an informative signal about asset returns and extract some of the information that the informed agents possess
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.
