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Asset Management Contracts and Equilibrium Prices / Andrea M. Buffa, Dimitri Vayanos, Paul Woolley.
- Format:
- Book
- Author/Creator:
- Buffa, Andrea M.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w20480.
- NBER working paper series no. w20480
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2014.
- Summary:
- We derive equilibrium asset prices when fund managers deviate from benchmark indices to exploit noise-trader induced distortions but fund investors constrain these deviations. Because constraints force managers to buy assets that they underweight when these assets appreciate, overvalued assets have high volatility, and the risk-return relationship becomes inverted. Noise traders bias prices upward because constraints make it harder for managers to underweight overvalued assets, which have high volatility, than to overweight undervalued ones. We endogenize the constraints based on investors' uncertainty about managers' skill, and show that asset-pricing implications can be significant even for moderate numbers of unskilled managers.
- Notes:
- Print version record
- September 2014.
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