Agency and Institutional Investment

Posted: 31 Dec 2011  

Michael J. Brennan

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

Xiaolong Cheng

University of California, Los Angeles (UCLA) - Anderson School of Management

Feifei Li

Research Affiliates, LLC

Date Written: January 2012

Abstract

In this paper we summarise and extend the agency‐based model of asset pricing of Brennan (1993) to show that the implied agency effects on asset pricing are too small to be empirically detectable: empirical tests confirm this and we show that the positive findings of Gomez and Zapatero (2003) are due to their choice of sample. We also derive new empirical implications for the composition of institutional investment portfolios and empirically confirm the major result, that institutional portfolios will be short the minimum variance portfolio.

Keywords: portfolio choice, asset pricing, CAPM, institutional investors

JEL Classification: G110, G120, G230

Suggested Citation

Brennan, Michael J. and Cheng, Xiaolong and Li, Feifei, Agency and Institutional Investment (January 2012). European Financial Management, Vol. 18, Issue 1, pp. 1-27, 2012. Available at SSRN: https://ssrn.com/abstract=1977739 or http://dx.doi.org/10.1111/j.1468-036X.2011.00596.x

Michael John Brennan

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

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

Xiaolong Cheng

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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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