Capital Market Equilibrium with Competition Among Institutional Investors

29 Pages Posted: 7 Mar 2012 Last revised: 11 Jun 2013

Date Written: May 1, 2013

Abstract

We develop a dynamic general equilibrium model to study how competition among institutional investors affects the stock market characteristics - level, expected return, and volatility. We consider an economy in which multiple fund managers strategically interact with each other, as each manager tries to increase her performance relative to the others. We fully characterize an equilibrium in this economy, and find that a more intense competition is associated with a higher level of the market, lower expected market return, while market volatility is not affected by competition. These findings are broadly consistent with the data.

Keywords: G12, G29

JEL Classification: asset pricing, competition, money management, relative performance

Suggested Citation

Glebkin, Sergei and Makarov, Dmitry, Capital Market Equilibrium with Competition Among Institutional Investors (May 1, 2013). Available at SSRN: https://ssrn.com/abstract=2017002 or http://dx.doi.org/10.2139/ssrn.2017002

Sergei Glebkin

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

Dmitry Makarov (Contact Author)

ICEF, Higher School of Economics ( email )

26 Shabolovka
Moscow
Russia

HOME PAGE: http://www.nes.ru/~dmakarov

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