Relative performance evaluation contracts and asset market equilibrium
Kapur, Sandeep and Timmermann, A. (2005) Relative performance evaluation contracts and asset market equilibrium. The Economic Journal 115 (506), pp. 1077-1102. ISSN 0013-0133.
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Abstract
We analyse the equilibrium consequences of performance-based contracts for fund managers. Managerial remuneration is tied to a fund's absolute and relative performance. Investors choose whether or not to delegate their investment to better-informed fund managers; if they delegate they choose the optimal contract subject to the fund manager's participation constraint. We find that the impact of relative performance evaluation on the equilibrium equity premium and on portfolio herding critically depends on whether the participation constraint is binding. Simple numerical examples suggest that the increased importance of delegation and relative performance evaluation may lower the equity premium.
Metadata
| Item Type: | Article |
|---|---|
| Keyword(s) / Subject(s): | portfolio delegation, relative performance evaluation, equity premium |
| School: | Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Research Centres and Institutes: | Innovation Management Research, Birkbeck Centre for |
| Depositing User: | Sandra Plummer |
| Date Deposited: | 17 Jan 2006 |
| Last Modified: | 02 Aug 2023 16:46 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/296 |
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