Competition in Fund Management and Forward Relative Performance Criteria

25 Pages Posted: 7 Dec 2020

See all articles by Michail Anthropelos

Michail Anthropelos

University of Piraeus - Department of Banking and Financial Management

Tianran Geng

Boston Consulting Group

Thaleia Zariphopoulou

University of Texas at Austin - Red McCombs School of Business

Date Written: November 2, 2020

Abstract

In an Ito-diffusion market, two fund managers trade under relative performance concerns. For both the asset specialization and diversi?cation settings, we analyze the passive and competitive cases. We measure the performance of the managers' strategies via forward relative performance criteria, leading to the respective notions of forward best-response criterion and forward Nash equilibrium. The motivation to develop such criteria comes from the need to relax various crucial, but quite stringent, existing assumptions - such as, the a priori choices of both the market model and the investment horizon, the commonality of the latter for both managers as well as the full a priori knowledge of the competitor's policies for the best-response case. We focus on locally riskless criteria and deduce the random forward equations. We solve the CRRA cases, thus also extending the related results in the classical setting. An important by-product of the work herein is the development of forward performance criteria for investment problems in Ito-diffusion markets under the presence of correlated random endowment process for both the perfectly and the incomplete market cases.

Keywords: Competition of asset managers, Nash equilibrium

JEL Classification: C02, C72, C61, G11

Suggested Citation

Anthropelos, Michail and Geng, Tianran and Zariphopoulou, Thaleia, Competition in Fund Management and Forward Relative Performance Criteria (November 2, 2020). Available at SSRN: https://ssrn.com/abstract=3723229 or http://dx.doi.org/10.2139/ssrn.3723229

Michail Anthropelos (Contact Author)

University of Piraeus - Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

Tianran Geng

Boston Consulting Group ( email )

2501 N Harwood St
Suite 2200
Dallas, TX 75201
United States

Thaleia Zariphopoulou

University of Texas at Austin - Red McCombs School of Business ( email )

Austin, TX 78712
United States

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