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MoralHazardInActiveManagement_ ...
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Final Accepted Manuscript
Affiliation
Eller College of Management, University of ArizonaIssue Date
2017-08
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ELSEVIER SCIENCE SACitation
Moral hazard in active asset management 2017, 125 (2):311 Journal of Financial EconomicsJournal
Journal of Financial EconomicsRights
© 2017 Elsevier B.V. All rights reserved.Collection Information
This 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 repository@u.library.arizona.edu.Abstract
We 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.Note
36 month embargo; Available online 17 May 2017ISSN
0304405XVersion
Final accepted manuscriptAdditional Links
http://linkinghub.elsevier.com/retrieve/pii/S0304405X17301010ae974a485f413a2113503eed53cd6c53
10.1016/j.jfineco.2017.05.010