Article(electronic)#12020
Effective Risk Aversion in Thin Risk‐Sharing Markets
In: Mathematical Finance, Volume 30, Issue 4, p. 1565-1590
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Article(electronic)#2July 11, 2023
Managing other people's money: An agency theory in financial management industry
In: The journal of financial research: the journal of the Southern Finance Association and the Southwestern Finance Association, Volume 47, Issue 1, p. 179-209
ISSN: 1475-6803
AbstractWe build an active asset management model to study the interplay between the career concerns of a manager and prevailing market conditions. We show that fund managers overinvest in market‐neutral strategies, as these have a reputational benefit. This benefit is smaller in bull markets, when investors expect more managers to use high‐beta strategies, making their performance less informative about their ability than in bear markets. Consequently, fund flows that follow high‐beta strategies are less responsive to the fund's performance, and flow‐performance sensitivity is higher in bear markets than in bull markets.
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