Abstract

http://ssrn.com/abstract=1342876
 
 

References (38)



 


 



How Does Illiquidity Affect Delegated Portfolio Choice?


Min Dai


National University of Singapore (NUS) - Department of Mathematics

Luis Goncalves-Pinto


National University of Singapore

Jing Xu


National University of Singapore (NUS) - Department of Mathematics

February 7, 2016

WFA 2010 Victoria Meetings Paper
EFA 2009 Bergen Meetings Paper

Abstract:     
We solve a model in which fund managers have an incentive to gamble in response to beating their benchmarks. This gambling behaviour is induced by a convex relation between fund flows and past performance. The stocks used to gamble are illiquid and can only be traded at randomly occurring trading opportunities. We show that stock illiquidity weakens the incentive to gamble, which in turn reduces the costs that accrue to fund investors from portfolio delegation. Our empirical analysis lends support to this novel prediction of our model. We use decimalization as an exogenous shock to liquidity to identify causal effects.

Number of Pages in PDF File: 61

Keywords: Mutual Funds, Risk Shifting, Portfolio Delegation, Stock Illiquidity

JEL Classification: C61, D11, D91, G11, G12, G23


Open PDF in Browser Download This Paper

Date posted: February 16, 2009 ; Last revised: February 11, 2016

Suggested Citation

Dai, Min and Goncalves-Pinto, Luis and Xu, Jing, How Does Illiquidity Affect Delegated Portfolio Choice? (February 7, 2016). WFA 2010 Victoria Meetings Paper; EFA 2009 Bergen Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1342876 or http://dx.doi.org/10.2139/ssrn.1342876

Contact Information

Min Dai
National University of Singapore (NUS) - Department of Mathematics ( email )
Singapore
Luis Goncalves-Pinto (Contact Author)
National University of Singapore ( email )
Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore
HOME PAGE: http://luis.goncalvespinto.com
Jing Xu
National University of Singapore (NUS) - Department of Mathematics ( email )
10 Kent Ridge Crescent
Singapore, 119260
Singapore
Feedback to SSRN


Paper statistics
Abstract Views: 2,035
Downloads: 284
Download Rank: 73,372
References:  38

© 2016 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollobot1 in 0.266 seconds