Optimum Centralized Portfolio Construction with Decentralized Portfolio Management

Edwin J. Elton and Martin J. Gruber
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Edwin J. Elton: New York University, 44 West 4th Street, Suite 9-190, New York, NY 10012, USA
Martin J. Gruber: New York University, 44 West 4th Street, Suite 9-190, New York, NY 10012, USA

Chapter 18 in Investments and Portfolio Performance, 2010, pp 367-380 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractMany financial institutions employ outside portfolio managers to manage part or all of their investable assets. It is well recognized that outside portfolio managers are unwilling to share security information with each other or with the centralized decision maker and this in general will lead to sub-optimal portfolios. In this paper, we derive an implementable set of rules under which a central decision maker can make optimal decisions without requiring decentralized decision makers to reveal estimates of security returns. Furthermore, we derive conditions under which these rules hold and when they do not hold.

Keywords: Investments; Portfolio Management; Bond Pricing; Pension Funds; Estimating Taxes (search for similar items in EconPapers)
Date: 2010
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