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Delegated portfolio management: a survey of the theoretical literature

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  • Stracca, Livio

Abstract

This paper provides a selective review of the theoretical literature on delegated portfolio management as a principal-agent relationship. The main focus of the paper is to review the analytical issues raised by the peculiar nature of the delegated portfolio management relationship within the broader class of principalagent models. In particular, the paper discusses the performance of linear vs. nonlinear compensation contracts in a single-period setting, the possible effects of limited liability of portfolio managers, the role of reputational concerns in a multiperiod framework, and the incentives to noise trading. In addition, the paper deals with some general equilibrium dimensions and asset pricing implications of delegated portfolio management. The paper also suggests some directions for future research. JEL Classification: D82, G11

Suggested Citation

  • Stracca, Livio, 2005. "Delegated portfolio management: a survey of the theoretical literature," Working Paper Series 520, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2005520
    Note: 335958
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    More about this item

    Keywords

    adverse selection; agency; Delegated portfolio management; moral hazard; principal-agent models;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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