Managing other people's money: an agency theory in financial management industry

Papadimitriou, Dimitris, Tokis, Konstantinos, Vichos, Georgios and Mourdoukoutas, Panos (2023) Managing other people's money: an agency theory in financial management industry. Journal of Financial Research. ISSN 0270-2592

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Abstract

We build an active asset management model to study the interplay between the career concerns of a manager and prevailing market conditions. We show that fund managers overinvest in market-neutral strategies, as these have a reputational benefit. This benefit is smaller in bull markets, when investors expect more managers to use high-beta strategies, making their performance less informative about their ability than in bear markets. Consequently, fund flows that follow high-beta strategies are less responsive to the fund's performance, and flow-performance sensitivity is higher in bear markets than in bull markets.

Item Type:	Article
Additional Information:	© 2023 The Authors. Journal of Financial Research published by Wiley Periodicals LLC on behalf of The Southern Finance Association and the Southwestern Finance Association.
Divisions:	Statistics
Subjects:	H Social Sciences > HG Finance H Social Sciences > HA Statistics
JEL classification:	D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions G - Financial Economics > G2 - Financial Institutions and Services > G20 - General
Date Deposited:	31 Jul 2023 11:09
Last Modified:	25 Apr 2024 17:51
URI:	http://eprints.lse.ac.uk/id/eprint/119872

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