A Model of Portfolio Delegation and Strategic Trading
This paper endogenizes information acquisition and portfolio delegation in a one-period strategic trading model. Linear equilibriums composed of linear prices, demands, and contracts are considered. In the case of exogenous noise trading, we find that more noise trading generally leads to a more informative stock price, due to optimal contracting. In the case of endogenous noise trading, when the informed portfolio manager is relatively risk tolerant (averse), the price informativeness increases (decreases) with the hedging demand of the uninformed hedgers. Our results differ from those obtained in the traditional market microstructure literature in which the price informativeness is independent of or decreases with the amount of noise trading. Incentive contract in our model induces the manager to exert effort in information acquisition as well as influences the manager’s trading intensity. A lower incentive contract may make the manager effectively less risk averse; consequently, the manager may exert more effort in acquiring information so as to trade more aggressively in the stock. Our results highlight the importance of developing an integrated model of portfolio delegation and strategic trading.
Portfolio Delegation Information Acquisition Strategic Trading Price Informativeness
Albert S. Kyle Hui Ou-Yang Bin Wei
Robert H. Smith School of Business, University of Maryland Fixed Income Division, Nomura International Limited, Hong Kong Zicklin School of Business, Baruch College, the City University of New York
国际会议
广州
英文
1-39
2009-07-07（万方平台首次上网日期，不代表论文的发表时间）