Overconfidence and Delegated Portfolio Management

F.A. Palomino, A. Sadrieh

Research output: Working paperDiscussion paperOther research output

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Abstract

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
PublisherMicroeconomics
Number of pages34
Volume2003-54
Publication statusPublished - 2003

Publication series

NameCentER Discussion Paper
Volume2003-54

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Delegated portfolio management
Managers
Hiring
Overconfidence
Financial institutions
Price impact
Trading agents
Financial markets
Empirical evidence
Market anomalies
Private information
Optimal contract

Keywords

  • portfolio management
  • financial markets
  • financial instutions

Cite this

Palomino, F. A., & Sadrieh, A. (2003). Overconfidence and Delegated Portfolio Management. (CentER Discussion Paper; Vol. 2003-54). Tilburg: Microeconomics.
Palomino, F.A. ; Sadrieh, A. / Overconfidence and Delegated Portfolio Management. Tilburg : Microeconomics, 2003. (CentER Discussion Paper).
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Palomino, FA & Sadrieh, A 2003 'Overconfidence and Delegated Portfolio Management' CentER Discussion Paper, vol. 2003-54, Microeconomics, Tilburg.

Overconfidence and Delegated Portfolio Management. / Palomino, F.A.; Sadrieh, A.

Tilburg : Microeconomics, 2003. (CentER Discussion Paper; Vol. 2003-54).

Research output: Working paperDiscussion paperOther research output

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AB - 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.

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KW - financial instutions

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Palomino FA, Sadrieh A. Overconfidence and Delegated Portfolio Management. Tilburg: Microeconomics. 2003. (CentER Discussion Paper).