This work gives another fundamental explanation for the stylized fact of active management underperformance. I develop a model of delegated portfolio management with adverse selection, where the preferences of investor and advisor are misaligned. The information structure I focus on is intermediate between the cases of private and public information: the advisor can distort the observed sharpe ratio at some cost. I show that investor may strictly prefer the contract that induces falsification as it helps him to manipulate the information rents of the agent. Within the model I show that investor prefers to deal with the advisors that have higher partisan objective as it leads to higher expected utility. I study how optimal contract and welfare changes when the information structure changes from private to public. The relation between the social welfare and the degree of information publicness is non-monotonic: although social welfare is maximum under pure public information, increasing the publicness of information may decrease the welfare.

(2016). Falsification in Financial Advice. (Tesi di dottorato, Università degli Studi di Milano-Bicocca, 2016).

Falsification in Financial Advice

YAN, YULIA
2016

Abstract

This work gives another fundamental explanation for the stylized fact of active management underperformance. I develop a model of delegated portfolio management with adverse selection, where the preferences of investor and advisor are misaligned. The information structure I focus on is intermediate between the cases of private and public information: the advisor can distort the observed sharpe ratio at some cost. I show that investor may strictly prefer the contract that induces falsification as it helps him to manipulate the information rents of the agent. Within the model I show that investor prefers to deal with the advisors that have higher partisan objective as it leads to higher expected utility. I study how optimal contract and welfare changes when the information structure changes from private to public. The relation between the social welfare and the degree of information publicness is non-monotonic: although social welfare is maximum under pure public information, increasing the publicness of information may decrease the welfare.
NATALE, PIERGIOVANNA
financial advice, agent; theory, falsification
SECS-P/11 - ECONOMIA DEGLI INTERMEDIARI FINANZIARI
English
16-dic-2016
ECONOMIA PUBBLICA (DEFAP) - 73R
27
2013/2014
open
(2016). Falsification in Financial Advice. (Tesi di dottorato, Università degli Studi di Milano-Bicocca, 2016).
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/138471
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