Owner-Managers' Equity Portfolio Choice

Underdiversification of Owner-Managers - Required Returns and Incentive Effects

Owner-managers of private companies are often highly underdiversified. We investigate the consequences of underdiversification at the company level. There is a strong positive relationship between underdiversification, measured as the share of personal net worth invested in the company, and profitability, measured as the return on equity. The analysis identifies two causes for this underdiversi...

Gaming Performance Fees by Portfolio Managers

Any compensation mechanism that is intended to reward superior investment performance can be gamed by managers who have no superior information or predictive ability; moreover they can capture a sizable amount of the fees intended for the superior managers. We derive precise bounds on the size of this coat‐tail effect and show that it remains substantial even when payments are postponed, bonuse...

Asymmetric Information, Portfolio Managers and Home Bias

Why do investors excessively tilt their portfolio towards domestic assets? Recent studies suggest asymmetric information plays a signi…cant role in the home equity bias puzzle. A key assumption in theoretical models is that agents invest in assets and process information on their own. However, most international investments are executed by managers in …nancial institutions. These institutions a...

Portfolio Choice Problems ∗

Modern Portfolio Theory, Digital Portfolio Theory and Intertemporal Portfolio Choice

The paper compares three portfolio optimization models. Modern portfolio theory (MPT) is a short-horizon volatility model. The relevant time horizon is the sampling interval. MPT is myopic and implies that investors are not concerned with long-term variance or mean-reversion. Intertemporal portfolio choice is a multiple period model that revises portfolios continuously in response to relevant s...