Overconfidence and delegated portfolio management∗
نویسندگان
چکیده
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. ∗Correspondence: Frederic Palomino, Dept of Finance, Tilburg University, PO Box 90153, 5000 LE Tilburg, The Netherlands. Tel: 31 13 466 32 62. Fax: 31 13 466 30 66. Email: [email protected].
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