How the Financial Managers’ Remuneration Can Affect the Optimal Portfolio Composition ?

Francesco Menoncin ()

No 2002022, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: In this paper we analyse the problem of an investor who must decide whether to manage his wealth by himself or give it in outsourcing. Financial managers are supposed to charge a commission composed of a fixed (A) and a variable (x) part, both deducted from portfolio payoffs. We demonstrate that the optimal portfolio composition crucially depends on the magnitude of A and x. We make a general analysis of this dependence and, in particular, we show that high level of A (respectively, x) lead to an outsourced portfolio which has a lower (respectively, higher) risk-return profile with respect to the self-managed portfolio.

Keywords: optimal portfolio; outsourcing; managers’remuneration (search for similar items in EconPapers)
JEL-codes: G11 G28 (search for similar items in EconPapers)
Pages: 19
Date: 2002-06-01
New Economics Papers: this item is included in nep-cfn, nep-fin, nep-ifn and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:2002022

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