Professional Portfolio Managers - a Setting for Momentum Strategies

19 Pages Posted: 7 Feb 2007 Last revised: 30 Jul 2008

See all articles by Jose L. B. Fernandes

Jose L. B. Fernandes

Universidade de Brasília

Juan Ignacio Peña

Universidad Carlos III de Madrid - Department of Business Administration

Benjamin M. Tabak

FGV/EPPG

Jose Renato Haas Ornelas

Banco Central do Brasil

Date Written: July 28, 2008

Abstract

Most real world market participants are professional portfolio managers (PPM), which means that they are not managing their own money, but rather managing money for other people (e.g. mutual funds, pension funds). This situation generates an agency feature which has relevant consequences, as investors lacking specialized knowledge may evaluate the PPM just based on his past performance (Performance Based Evaluation - PBE). The objective of this paper is to extend the analysis of the PPM's context inferring the effectiveness of feedback trading in this setting and so describing a source of market's inefficiency. In this sense, we propose a model which considers that professional investment is conducted by a relatively small number of highly specialized PPM using other people's capital. In a deductive way, we reach four propositions which justify the effectiveness of momentum strategies.

Keywords: Momentum, Agency Theory, Prospect Theory

JEL Classification: G12

Suggested Citation

Fernandes, Jose Luiz Barros and Peña, Juan Ignacio and Tabak, Benjamin M. and Ornelas, Jose Renato Haas, Professional Portfolio Managers - a Setting for Momentum Strategies (July 28, 2008). Available at SSRN: https://ssrn.com/abstract=961343 or http://dx.doi.org/10.2139/ssrn.961343

Jose Luiz Barros Fernandes (Contact Author)

Universidade de Brasília ( email )

Campus Universitário Darcy Ribeiro
Brasília, Distrito Federal 70910-900
Brazil

Juan Ignacio Peña

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain
34 91 624 9625 (Phone)
34 91 624 9608 (Fax)

Benjamin M. Tabak

FGV/EPPG ( email )

SGAN Av. L2 Norte - Quadra 602 - Módulos A, B e C
Brasília, Rio de Janeiro 70830-051
Brazil

Jose Renato Haas Ornelas

Banco Central do Brasil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia, Distrito Federal 70074-900
Brazil

HOME PAGE: http://www.bcb.gov.br

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