AffiliationEller College of Management, University of Arizona
MetadataShow full item record
PublisherELSEVIER SCIENCE SA
CitationMoral hazard in active asset management 2017, 125 (2):311 Journal of Financial Economics
JournalJournal of Financial Economics
Rights© 2017 Elsevier B.V. All rights reserved.
Collection InformationThis item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at firstname.lastname@example.org.
AbstractWe consider a model of active asset management in which mutual fund managers exert unobservable effort to earn excess returns. Investors allocate capital to actively managed funds and passively managed products. In equilibrium, investors are indifferent between investing an additional dollar with an active manager or with a passively managed product. As passively managed products become more attractive to investors, active managers’ revenues from portfolio-management services fall, reducing their effort incentives. More-severe decreasing-returns-to-scale are also associated with reduced incentives and increased moral hazard. Performance-based fees and holdings-based data are all unlikely to mitigate moral hazard.
Note36 month embargo; Available online 17 May 2017
VersionFinal accepted manuscript