Asset Prices When Agents are Marked-to-Market
Asset prices contain information about fundamentals and therefore can be used by principal investors to monitor the trading performance of their delegated portfolio managers or professional traders. This is referred to as marking-to-market. We study the optimality of the practice of marking-to-market and provide conditions under which investing principals should monitor their agent traders using market prices. The informativeness of asset prices, however, can be affected by such mark-to-market contracts because such contracts introduce an externality when there are many traders. Traders may ignore their own private information and trade instead based on irrelevant information, believing (correctly) that this will maximize their compensation. This is essentially noise trade. Ironically, this causes asset prices to be less informative than they would be without mark-to-market contracts.
Gary B. Gorton Ping He Lixin Huang
University of Pennsylvania and NBER Philadelphia, PA 19104-6367 University of Illinois at Chicago and Lehman Brothers 601 S Morgan, UH 2406, Chicago, IL 60607 City University of Hong Kong 83 Tat Chee Avenue, Kowloon, Hong Kong
国际会议
成都
英文
1-32
2007-07-09（万方平台首次上网日期，不代表论文的发表时间）