Managing Other People's Money: An Agency Theory in Financial Management Industry

Dimitris Papadimitriou, Konstantinos Tokis, Georgios Vichos, Panos Mourdoukoutas

Research output: Contribution to journalArticlepeer-review

Abstract

We build an active asset management model to study the interplay between the career concerns of a manager and the prevailing market conditions. We show that fund managers over-invest in market neutral strategies, as these have a reputational benefit. This benefit is smaller in bull markets, when investors expect more managers to use high beta strategies, making their performance less informative about their ability than in bear markets. Consequently, flows of funds that follow high beta strategies are less responsive to the fund’s performance and the flow-performance sensitivity is higher in bear than in bull markets.
Original languageEnglish
JournalJOURNAL OF FINANCIAL RESEARCH
Publication statusAccepted/In press - 25 Jan 2023

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