Herding and delegated portfolio management : the impact of relative performance evaluation on asset allocation

DOI:	https://doi.org/10.1142/S2010139211000092
URL:	https://www.worldscientific.com/doi/abs/10.1142/S2...
Weitere URL:	https://www.researchgate.net/publication/242691728...
Dokumenttyp:	Zeitschriftenartikel
Erscheinungsjahr:	2011
Titel einer Zeitschrift oder einer Reihe:	The Quarterly Journal of Finance : QJF
Band/Volume:	1
Heft/Issue:	2
Seitenbereich:	265-292
Ort der Veröffentlichung:	Singapore [u.a.]
Verlag:	World Scientific Publ.
ISSN:	2010-1392 , 2010-1406
Sprache der Veröffentlichung:	Englisch
Einrichtung:	Fakultät für Betriebswirtschaftslehre > ABWL u. Corporate Finance (Maug 2006-)
Fachgebiet:	330 Wirtschaft
Abstract:	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.