Abstract

http://ssrn.com/abstract=1342876
 
 

References (38)



 
 

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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 20, 2016

WFA 2010 Victoria Meetings Paper
EFA 2009 Bergen Meetings Paper

Abstract:     
We examine the problem of fund managers who have an incentive to gamble in order to outperform their benchmarks and get more money to manage. In our model, the assets that fund managers use to gamble are illiquid. The novel prediction of our model is that the larger the illiquidity of those assets the smaller the gambles taken by fund managers. This in turn decreases the costs that accrue to fund investors from misaligned incentives in portfolio delegation. We find empirical support for this prediction, using decimalization as an exogenous shock to liquidity to identify causal effects.

Number of Pages in PDF File: 60

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

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


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Date posted: February 16, 2009 ; Last revised: February 21, 2016

Suggested Citation

Dai, Min and Goncalves-Pinto, Luis and Xu, Jing, How Does Illiquidity Affect Delegated Portfolio Choice? (February 20, 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
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