Delegated Portfolio Management, Optimal Fee Contracts, and Asset Prices

Yuki Sato
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Yuki Sato: University of Lausanne and Swiss Finance Institute

No 15-06, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: This paper proposes a model of asset-market equilibrium with portfolio delegation and optimal fee contracts. Fund managers and investors strategically interact to determine funds' investment profiles, while they share portfolio risk through fee contracts. In equilibrium, their investment decisions, fee schedules, and stock prices feed back into one another. The model yields testable implications for the relations between stock returns, fund returns, fund fees, fund size, and investment strategies. As more investor capital is intermediated by funds, stocks' aggregate demand becomes less price-elastic, making the prices more volatile. Fund returns behave differently from market returns because funds use leverage counter-cyclically.

Keywords: portfolio delegation; optimal fee; asset prices; price volatility; fund size; fund return (search for similar items in EconPapers)
JEL-codes: G11 G12 G23 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2015-02
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1506

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