Equilibrium Implications of Delegated Asset Management Under Benchmarking
50 Pages Posted: 21 Nov 2008 Last revised: 31 Mar 2012
Date Written: November 21, 2008
Despite the enormous growth of the asset management industry during the past decades, little is known about the asset pricing implications of investment intermediaries. Standard models of investment theory do not address the distinction between individual and institutional investors nor the potential implications of direct investing and delegated investing. In a model with endogenous delegation, we find that delegation leads to a more informative price system and lower equity premia. In the presence of relative return objectives, stocks exhibiting high correlations with the benchmark have significantly lower returns than stocks with low correlations. Our empirical results support the model’s predictions.
Keywords: Portfolio Delegation, Benchmarking, General Equilibrium, Equity Risk Premia
JEL Classification: G11, G14, D83
Suggested Citation: Suggested Citation