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Author: David L. Stowe Publisher: ISBN: Category : Electronic dissertations Languages : en Pages :
Book Description
In my first essay, I demonstrate how the Cremers and Petajisto (2009) Active Share measure can be re-parameterized into the standard portfolio parameters we typically see in other portfolio management studies, namely betas and standard deviations. This demonstrates that Active Share is not very different than the measures we traditionally use to study portfolio management. One of the parameters that results from the re-parameterization is a measure of the risk of the manager's active bets, the volatility of the implied hedge position relative to the benchmark. This parameter is equally as strong as Active Share in predicting excess performance and helps give a better economic understanding of why Active Share exhibits predictive power. Active Share and this implied hedge measure are like a confidence and information problem. In my second essay, I use the idea of benchmark relative investment optimization as outlined in Roll (1992). These portfolios are sub-optimal but they can be better than the alternative, i.e., better than the portfolios that the principals could build themselves. I outline the conditions under which delegated managers increase the principal's utility. Additionally, if implemented properly, tracking error constraints, Jorion (2003) and beta constraints, Roll (1992), can force the delegated manager to buy a more efficient portfolio than the benchmark. Thus, even though relative utility maximization is sub-optimal, if the delegated manager is more skillful than the principal in portfolio construction, delegated portfolio management is still likely preferred to naively holding the benchmark.
Author: David L. Stowe Publisher: ISBN: Category : Electronic dissertations Languages : en Pages :
Book Description
In my first essay, I demonstrate how the Cremers and Petajisto (2009) Active Share measure can be re-parameterized into the standard portfolio parameters we typically see in other portfolio management studies, namely betas and standard deviations. This demonstrates that Active Share is not very different than the measures we traditionally use to study portfolio management. One of the parameters that results from the re-parameterization is a measure of the risk of the manager's active bets, the volatility of the implied hedge position relative to the benchmark. This parameter is equally as strong as Active Share in predicting excess performance and helps give a better economic understanding of why Active Share exhibits predictive power. Active Share and this implied hedge measure are like a confidence and information problem. In my second essay, I use the idea of benchmark relative investment optimization as outlined in Roll (1992). These portfolios are sub-optimal but they can be better than the alternative, i.e., better than the portfolios that the principals could build themselves. I outline the conditions under which delegated managers increase the principal's utility. Additionally, if implemented properly, tracking error constraints, Jorion (2003) and beta constraints, Roll (1992), can force the delegated manager to buy a more efficient portfolio than the benchmark. Thus, even though relative utility maximization is sub-optimal, if the delegated manager is more skillful than the principal in portfolio construction, delegated portfolio management is still likely preferred to naively holding the benchmark.
Author: Ms.Deniz Igan Publisher: International Monetary Fund ISBN: 1513586874 Category : Business & Economics Languages : en Pages : 39
Book Description
We analyze the implications of linking the compensation of fund managers to the return of their portfolio relative to that of a benchmark—a common solution to the agency problem in delegated portfolio management. In the presence of such relativeperformance- based objectives, investors have reduced expected utility but markets are typically more informative and deeper. Furthermore, in a multiple asset/market framework we show that (i) relative performance concerns lead to an increase in the correlation between markets (financial contagion); (ii) benchmark inclusion increases price volatility; (iii) home bias emerges as a rational outcome. When information is costly, information acquisition is hindered and this attenuates the effects on informativeness and depth of the market.
Author: Raymond Chi Wai Leung Publisher: ISBN: Category : Languages : en Pages : 234
Book Description
This dissertation is a compilation of three papers that investigate the role of optimal contracting in a delegated portfolio management setting. While the study of optimal contracts in classical principal-agent setup has been extensively studied, relatively few have been studied in the context of delegated portfolio management in finance. And even delegated portfolio management papers in finance, there are still several open questions and unresolved issues that are beyond the scope of a standard principal-agent problem. In Chapter 1, I study a continuous-time principal-agent problem with drift and stochastic volatility control. While the problem with drift-only control by an agent has been extensively studied recently, very few existing papers allow an agent to endogenously influence volatility. Endogenous volatility control is particularly important in delegated portfolio management settings as volatility is one of the defining aspects of modern financial portfolio management. In Chapter 2, I study a model that encompasses dynamic agency, delegated portfolio management and asset pricing. Traditionally, the fields of ``asset pricing'' and ``corporate finance'' are studied independently of each other. However, as the modern portfolio management industry blooms in size and influence, the role of the portfolio manager and the contracts that are extended to them arguably has a role in the securities that they invest in, and hence in equilibrium, the asset pricing implications of the market overall. This paper is an attempt to bridge ``asset pricing'' and ``corporate finance'' (specifically interpreted to mean delegated portfolio management contracting) into one. In Chapter 3, I study whether a principal investor is better off delegating most of his money to a single portfolio manager (centralized delegation), as opposed to multiple portfolio managers (decentralized delegation), especially when there is the possible presence of moral hazard. With the size of the hedge fund industry and growing empirical support that moral hazard is a growing risk among hedge fund managers, it becomes imperative to understand when an investor decides to delegate his money, should it be delegated in a more centralized or decentralized fashion.
Author: Sitikantha Parida Publisher: ISBN: Category : Languages : en Pages :
Book Description
This thesis contains three essays on delegated portfolio management and deals with issues such as impact of regulations on mutual fund performance, impact of competition on transparency in financial markets and strategic trading behaviour of agents in illiquid markets. Chapter 1 analyses the impact of more frequent portfolio disclosure on mutual funds performance. Since 2004, SEC requires all U.S. mutual funds to disclose their portfolio holdings on a quarterly basis from semi-annual previously. This change in regulation provides a natural setting to study the impact of disclosure frequency on the performance of mutual funds. Prior to the policy change, it finds that the semi-annual funds with high abnormal returns in the past year outperform the corresponding quarterly funds by 17-20 basis points a month. This difference in performance disappears after 2004. The reduction in performance is higher for semi-annual funds holding illiquid assets than those holding liquid assets. These results support the hypothesis that performance of funds with more disclosure suffers more from activities such as front running. Chapter 2 analyses the impact of competition in financial markets on incentives to re- veal information. It finds that discretionary portfolio disclosure and advertising expenses of mutual funds decrease with competition. This supports the theory that mutual funds use portfolio disclosure and advertising as marketing tools to attract new investments in a financial market, where superior relative performance and greater visibility are rewarded with convex payoffs. With higher competition, the likelihood of landing new investments goes down for each fund while the cost of disclosure goes up. Funds respond by cutting down on costly disclosures and advertising activities. Thus competition seems to have adverse impact on market transparency and search cost. 3Chapter 3 develops a model of strategic trading to study forced liquidation. Traders who hold an illiquid risky security have to satisfy minimum capital requirements, or liquidate their position. Therefore, traders with price impact can induce the fire sale of others to benefit from future low prices. It shows that if traders have similar proportions of wealth invested in the risky security, or the market is sufficiently liquid, they behave cooperatively and smooth their orders over several trading periods. However, if the proportions are significantly different across agents, and market liquidity is low, the strong agent, who is less exposed to the risky asset, predates on the weak agent, and forces her to exit the market.
Author: Ioanna Papastaikoudi Publisher: ISBN: Category : Languages : en Pages : 290
Book Description
(Cont.) is reversed because of the high costs of liquidations when unexpectedly unwinding the positions. The third chapter is joint work with Ilan Guedj. We examine whether mutual fund families affect the performance of the funds they manage. From a sample of funds belonging only to large families we find that last year's best performing funds outperform last year's worst performing funds by 58 basis points. We also show that there exists persistence of performance of these funds inside their respective families. Supporting these findings, we also show that the better performing funds in a family have a higher probability of being allocated more managers, one of the main resources available. This is consistent with the view that fund families allocate resources in proportion to fund performance and not fund needs.
Author: David L. Stowe
Author: David L. Stowe
Author: Ms.Deniz Igan
Author: Bernhard Silli
Author: Nataliya Gerasimova
Author: Raymond Chi Wai Leung
Author: Niklas Hüther
Author: Zhigang Qiu
Author: Sitikantha Parida
Author: Ioanna Papastaikoudi
Author: Yūki Satō