Equilibrium Implications of Delegated Asset Management Under Benchmarking

50 Pages Posted: 21 Nov 2008 Last revised: 31 Mar 2012

See all articles by Markus Leippold

Markus Leippold

University of Zurich; Swiss Finance Institute

Philippe Rohner

University of Zurich - Swiss Banking Institute (ISB); University of Zurich - Department of Banking and Finance

Date Written: November 21, 2008

Abstract

Despite the enormous growth of the asset management industry during the past decades, little is known about the asset pricing implications of investment intermediaries. Standard models of investment theory do not address the distinction between individual and institutional investors nor the potential implications of direct investing and delegated investing. In a model with endogenous delegation, we find that delegation leads to a more informative price system and lower equity premia. In the presence of relative return objectives, stocks exhibiting high correlations with the benchmark have significantly lower returns than stocks with low correlations. Our empirical results support the model’s predictions.

Keywords: Portfolio Delegation, Benchmarking, General Equilibrium, Equity Risk Premia

JEL Classification: G11, G14, D83

Suggested Citation

Leippold, Markus and Rohner, Philippe and Rohner, Philippe, Equilibrium Implications of Delegated Asset Management Under Benchmarking (November 21, 2008). Available at SSRN: https://ssrn.com/abstract=1305029 or http://dx.doi.org/10.2139/ssrn.1305029

Markus Leippold

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Philippe Rohner (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Plattenstr 32
Zurich, 8032
Switzerland

University of Zurich - Swiss Banking Institute (ISB) ( email )

Plattenstrasse 14
CH-8032 Zurich, Zurich 8032
Switzerland

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