Overconfidence and Delegated Portfolio Management

F.A. Palomino, A. Sadrieh

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Following extensive empirical evidence about market anomalies and overconfidence, the analysis of financial markets with agents overconfident about the precision of their private information has received a lot of attention.However, all these models consider agents trading for their own account.In this article, we analyse a standard delegated portfolio management problem between a financial institution and a money manager who may be of two types: rational or overconfident.We consider several situations.In each case, we derive the optimal contract and results on the performance of financial institution hiring overconfident managers relative to institutions hiring rational agents, and results on the price impact of overconfidence.
Original languageEnglish
Place of PublicationTilburg
Number of pages34
Publication statusPublished - 2003

Publication series

NameCentER Discussion Paper


  • portfolio management
  • financial markets
  • financial instutions


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