Asset Management as Creator of Market Inefficiency

Dimitri Vayanos and Paul Woolley
Additional contact information
Paul Woolley: London School of Economics

Atlantic Economic Journal, 2023, vol. 51, issue 1, No 1, 11 pages

Abstract: Abstract In this paper, we describe how agency frictions in asset management can generate prime violations of the Efficient Markets Hypothesis, such as momentum, value and an inverted risk-return relationship. Momentum in our theory is associated with procyclical fund flows and price over-reaction, and is more pronounced for overvalued assets. The investors who generate the momentum and who are losing from it are those requiring their asset managers to keep their portfolios close to benchmark indices. Our theory suggests a rethinking of asset management contracts. Contracts should employ measures of long-run risk and return, and benchmark indices that emphasize asset fundamentals. There should also be greater transparency on managers’ choice of strategies.

Keywords: G12; G14; G23; E44; Financial markets; Asset management; Agency frictions; Momentum; Benchmarking (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11293-023-09769-6 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
Working Paper: Asset management as creator of market inefficiency (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:atlecj:v:51:y:2023:i:1:d:10.1007_s11293-023-09769-6

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/11293/PS2

DOI: 10.1007/s11293-023-09769-6

Access Statistics for this article

Atlantic Economic Journal is currently edited by Kathleen S. Virgo

More articles in Atlantic Economic Journal from Springer, International Atlantic Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().