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Contenido archivado el 2024-05-30

Implications of the Dynamic Nature of Portfolio Delegation

Objetivo

The asset management industry is a 60 trillion euros industry world wide, with a ratio of assets under management by asset managers to GDP around 100 percent. Despite the prominence of financial intermediaries in financial markets, our understanding of the portfolio delegation relationship, and its equilibrium asset pricing and contracting implications is at its infancy. The recent financial crisis has further underscored the importance of better understanding the incentives of financial intermediaries, the distortions induced by these incentives, the contracts that can help mitigate these distortions, and the impact of their trading on asset pricing dynamics.

One key feature that is at the core of the asset management relationship is its dynamic nature: investors can, and do, periodically re-allocate funds between managers and between funds and other investment vehicles. The magnitude of fund flows, both over time and accross funds at a given point in time, have been shown to be quantitatively large relative to assets under management. The ability of investors to quickly pull money out of funds at a time of crisis can have significant ramifications for the stability of the financial system.

Understanding implications of the dynamic nature of the delegation relationship is imperative in order to understand multiple aspects related to delegation and financial markets at large, including: risk taking behavior by funds; welfare implications for investors who invest in funds; what regulatory restrictions should be imposed on contracts; the evolution, past and future, of the asset management industry; securities return dynamics.

The objective is to develope models that will incorporate dynamic flows in settings that will allow studying implications and deriving empirical predictions on multiple dimensions: portfolio choice; optimal contracting; distribution of assets across funds; equilibrium asset pricing dynamics.

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ERC-2012-StG_20111124
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ERC-SG - ERC Starting Grant

Institución de acogida

REICHMAN UNIVERSITY
Aportación de la UE
€ 728 436,00
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