Management compensation and market timing under portfolio constraints
Journal article, Peer reviewed
Permanent lenke
http://hdl.handle.net/11250/93744Utgivelsesdato
2012Metadata
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- Scientific articles [2189]
Originalversjon
http://dx.doi.org/10.1016/j.jedc.2012.05.006Sammendrag
This paper shows that portfolio constraints have important implications for manage-
ment compensation and performance evaluation. In particular, in the presence of portfolio
constraints, allowing for benchmarking can be bene cial. Benchmark design arises as an al-
ternative e¤ort inducement mechanism vis-a-vis relaxing portfolio constraints. Numerically,
we solve jointly for the manager s linear incentive fee and the optimal benchmark. The size of
the incentive fee and the risk adjustment in the benchmark composition are increasing in the
investor s risk tolerance and the manager s ability to acquire and process private information.
Beskrivelse
This is the authors’ final, accepted and refereed manuscript to the article