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Portfolio allocation in actively managed funds

Author

Listed:
  • Stefano Herzel

    (University of Tor Vergata)

  • Marco Nicolosi

    (University of Perugia)

Abstract

We consider the problem of an investor who allocates his wealth among a risky asset and a managed portfolio. We obtain the optimal strategies of the fund managers for two different incentive schemes. We discuss an example of comparison of the efficient frontiers for the investor, in a model with mean reverting returns.

Suggested Citation

  • Stefano Herzel & Marco Nicolosi, 2017. "Portfolio allocation in actively managed funds," Economics Bulletin, AccessEcon, vol. 37(3), pages 1688-1693.
    • Handle: RePEc:ebl:ecbull:eb-17-00566
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2017/Volume37/EB-17-V37-I3-P154.pdf
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    References listed on IDEAS

    as
    1. Wachter, Jessica A., 2002. "Portfolio and Consumption Decisions under Mean-Reverting Returns: An Exact Solution for Complete Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(1), pages 63-91, March.
    2. Chevalier, Judith & Ellison, Glenn, 1997. "Risk Taking by Mutual Funds as a Response to Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1167-1200, December.
    3. Cox, John C. & Huang, Chi-fu, 1989. "Optimal consumption and portfolio policies when asset prices follow a diffusion process," Journal of Economic Theory, Elsevier, vol. 49(1), pages 33-83, October.
    4. Marco Nicolosi & Flavio Angelini & Stefano Herzel, 2018. "Portfolio management with benchmark related incentives under mean reverting processes," Annals of Operations Research, Springer, vol. 266(1), pages 373-394, July.
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    Cited by:

    1. Marco Nicolosi, 2018. "Optimal strategy for a fund manager with option compensation," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 41(1), pages 1-17, May.

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    More about this item

    Keywords

    Portfolio optimization; benchmark related incentives; efficient frontier;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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