Portfolio Performance and Agency

26 Pages Posted: 11 Nov 2008

See all articles by Philip H. Dybvig

Philip H. Dybvig

Washington University in St. Louis - John M. Olin Business School

Heber Farnsworth

Rice University

Jennifer N. Carpenter

New York University (NYU) - Department of Finance

Multiple version iconThere are 5 versions of this paper

Date Written: September 2003

Abstract

The literature traditionally assumes that a portfolio manager who expends costly effort to generate information makes an unrestricted portfolio choice and is paid according to a sharing rule. However, the revelation principle provides a more efficient institution. If credible communication of the signal is possible, then the optimal contract restricts portfolio choice and pays the manager a fraction of a benchmark plus a bonus proportional to performance relative to the benchmark. If credible communication is not possible, an additional incentive to report extreme signals may be required to remove a possible incentive to underprovide effort and feign a neutral signal.

Suggested Citation

Dybvig, Philip H. and Farnsworth, Heber and Carpenter, Jennifer N., Portfolio Performance and Agency (September 2003). NYU Working Paper No. FIN-03-031, Available at SSRN: https://ssrn.com/abstract=1299476

Philip H. Dybvig (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Heber Farnsworth

Rice University ( email )

6100 South Main Street
Houston, TX 77005-1892
United States

Jennifer N. Carpenter

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0352 (Phone)
212-995-4233 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
45
Abstract Views
4,506
PlumX Metrics