Delegation Uncertainty in the Era of Big Data

75 Pages Posted: 25 Apr 2015 Last revised: 13 Oct 2018

Ye Li

Ohio State University

Chen Wang

Yale School of Management

Date Written: October 10, 2018


Big data analysis requires expertise and creates a division of labor and knowledge. We delegate tasks to professionals who possess better information, but delegation carries an intrinsic form of uncertainty - its outcome depends on professionals' knowledge that is unknown to us. This paper studies delegation uncertainty in financial markets. The theory offers explanation for several puzzles on delegated portfolio management. It also produces asset pricing implications supported by our empirical analysis: (1) CAPM alpha arises because investors partially delegate and hedge against delegation uncertainty; (2) the cross-section dispersion of alpha increases in uncertainty; (3) managers bet on alpha, but alpha is immune to the rise of their arbitrage capital - delegation hedging is stronger when investors delegate more. Finally, we offer a novel approach to measure uncertainty from asset returns, delegation, and survey expectations.

Keywords: Model Uncertainty, Big Data, Asset Management, Cross-Sectional Asset Pricing, CAPM Alpha

JEL Classification: D80, G11, G12, G14, G20

Suggested Citation

Li, Ye and Wang, Chen, Delegation Uncertainty in the Era of Big Data (October 10, 2018). Columbia Business School Research Paper No. 15-54. Available at SSRN: or

Ye Li (Contact Author)

Ohio State University ( email )

Fisher Hall 836, 2100 Neil Ave
Columbus, OH 43210
United States


Chen Wang

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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