Paulo Cox, FEN-U. de Talca

Sala 209

“Incentives for Performance and Price Competition in Compulsory Delegated Portfolio Management”

Abstract: In this paper I build a model to explore the institutional investors’ incentives to exert effort in managing a compulsory delegated portfolio. I show that even when pension funds are highly skilled in obtaining information on risky asset returns, incentives can lead them to shirk. By proposing a simple and stylized model I show how these incentives depend on the asset markets’ characteristics and institutional features describing the pension system. In an extension to the basic model I also address incentives for performance and competition under the presence of a herding technology allowing firms to observe, at a certain information acquisition investment cost, what other firms do before making a decision on the portfolios they manage