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Information Production, Retail Investors, and Delegated Portfolio Management (He J.)

Information Asymmetry and Transparency

Abstract I analyze investors' choice to be active or passive and develop a model of the money management industry. I make use of a noisy rational expectations equilibrium framework with endogenous information production and endogenous choice of investment channels. In my model, agents can choose one of three investment channels: directly manage their own money, delegate the management of their money to professionals, or become money managers who charge proportional asset management fees. Retail investors and money managers then choose their own optimal level of effort to produce information and trade risky assets. While delegators do not pay costs to acquire information, their investment returns depend on the performance of money managers they hire. In equilibrium, agents with low information production costs and high initial wealth will manage their own money; those with low information production costs but low initial wealth will become money managers; and those with high information production costs will choose delegated portfolio management, regardless of wealth. I solve for the relative population of delegators and retail investors, the equilibrium size and structure of the money management industry, as well as the equilibrium asset prices. As such, the model yields new implications on the relationship between various attributes of the economy and the equilibrium equity premium. For instance, I find that an investor base with lower average information production costs tends to have more total delegated wealth, more money managers, smaller individual holdings of corporate equity, higher price informativeness, and a lower equity premium.
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Libref/ He J. (2009) “Information Production, Retail Investors, and Delegated Portfolio Management”, AFA 2010 Atlanta Meetings Paper, pp. 1-57
© Программирование — Александр Красильников, 2008
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