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

49 Pages Posted: 31 Aug 2020 Last revised: 9 Mar 2023

See all articles by Dimitris Papadimitriou

Dimitris Papadimitriou

King's College London

Konstantinos Tokis

affiliation not provided to SSRN

Georgios Vichos

London School of Economics & Political Science (LSE)

Panos Mourdoukoutas

Long Island University

Date Written: January 26, 2023

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.

Keywords: Mutual Funds, Fund Flows, Bayesian Learning, Competition

JEL Classification: G11, G23

Suggested Citation

Papadimitriou, Dimitrios and Tokis, Konstantinos and Vichos, Georgios and Mourdoukoutas, Panos, Managing Other People's Money: An Agency Theory in Financial Management Industry (January 26, 2023). Available at SSRN: https://ssrn.com/abstract=3658288 or http://dx.doi.org/10.2139/ssrn.3658288

Dimitrios Papadimitriou (Contact Author)

King's College London ( email )

Melbourne House
44-46 Aldwych
London, WC2B 4LL
United Kingdom

Konstantinos Tokis

affiliation not provided to SSRN

Georgios Vichos

London School of Economics & Political Science (LSE)

Panos Mourdoukoutas

Long Island University ( email )

720 Northern Boulevard
Brookville, 11548-1327
United States

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