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How Does a Portfolio Manager Balance the Relationship Between Money Management and Investment?

Author

Listed:
  • Liurui Deng
  • Lan Yang
  • Bolin Ma

Abstract

A portfolio manager can obtain profits from charging management fees to individual investors for helping them to invest. Moreover, as an insider, the portfolio manager can obtain proportional brokerage charges on the return on investment by investing the individual investors¡¯ money that he manages. How does the manager balance money management and investment to maximize his total profits? This is the problem that we study in this article. We model the relationship between money management fees and the amount invested. In addition, we investigate how to determine money management fees and the amount of investment needed to maximize the manager¡¯s total profits, including from management fees and brokerage charges.

Suggested Citation

  • Liurui Deng & Lan Yang & Bolin Ma, 2019. "How Does a Portfolio Manager Balance the Relationship Between Money Management and Investment?," Applied Economics and Finance, Redfame publishing, vol. 6(4), pages 62-71, July.
    • Handle: RePEc:rfa:aefjnl:v:6:y:2019:i:4:p:62-71
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    References listed on IDEAS

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    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. Judith Chevalier & Glenn Ellison, 1999. "Career Concerns of Mutual Fund Managers," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(2), pages 389-432.
    4. Holger Kraft & Ralf Korn, 2008. "Continuous-time delegated portfolio management with homogeneous expectations: can an agency conflict be avoided?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 22(1), pages 67-90, March.
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    More about this item

    Keywords

    money manager; institutional investor; individual investor; insider; money management fee;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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