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

Maug, Ernst ; Naik, Narayan

DOI: https://doi.org/10.1142/S2010139211000092
URL: https://www.worldscientific.com/doi/abs/10.1142/S2...
Additional URL: https://www.researchgate.net/publication/242691728...
Document Type: Article
Year of publication: 2011
The title of a journal, publication series: The Quarterly Journal of Finance : QJF
Volume: 1
Issue number: 2
Page range: 265-292
Place of publication: Singapore [u.a.]
Publishing house: World Scientific Publ.
ISSN: 2010-1392 , 2010-1406
Publication language: English
Institution: Business School > ABWL u. Corporate Finance (Maug 2006-)
Subject: 330 Economics
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.

Dieser Eintrag ist Teil der Universitätsbibliographie.

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