Agency and Asset Pricing

39 Pages Posted: 19 Mar 2008

See all articles by Michael J. Brennan

Michael J. Brennan

University of California, Los Angeles (UCLA) - Finance Area

Feifei Li

Research Affiliates, LLC

Date Written: March 11, 2008

Abstract

In this paper we present new empirical evidence on the agency based asset pricing model of Brennan (1993). We find strong evidence that in the recent period stocks whose returns covary more with the idiosyncratic component of the S&P500 return have significantly lower returns, holding constant either the market beta or the loadings on the Fama-French factors. The effect is confined mainly to large capitalization stocks, which is consistent with previous evidence that these stocks are favored by institutional investment managers. The lack of evidence for an agency effect in earlier years is also consistent with the much smaller importance of institutional investors in the earlier period and to the late development of risk-adjusted approaches to measuring portfolio management performance.

Keywords: Asset Pricing, Agency, Institutional Investing, Benchmark

JEL Classification: G11, G12

Suggested Citation

Brennan, Michael John and Li, Feifei, Agency and Asset Pricing (March 11, 2008). Available at SSRN: https://ssrn.com/abstract=1104546 or http://dx.doi.org/10.2139/ssrn.1104546

Michael John Brennan (Contact Author)

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825 3587 (Phone)
310-206 8419 (Fax)

Feifei Li

Research Affiliates, LLC ( email )

620 Newport Center Dr
Ste 900
Newport Beach, CA 92660
United States
949-325-8753 (Phone)
949-325-8953 (Fax)

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