Abstract
We model how investors allocate between asset managers, managers choose portfolios of multiple securities, fees are set, and security prices are determined. Investors are indifferent between higher-cost informed managers and lower-cost uninformed managers, interpreted as passive managers as their portfolio is linked to the " expected market portfolio." We make precise Samuelson's dictum by showing that active investors reduce micro-inefficiencies more than they do macro-inefficiencies. In fact, all inefficiency arises from systematic factors when the number of assets is large. Further, we show how the costs of active and passive investing affect macro- and micro-efficiency, fees, and assets managed by active and passive managers. Our findings help explain the rise of delegated asset management and the resultant changes in financial markets.
Originalsprog | Engelsk |
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Tidsskrift | The Review of Asset Pricing Studies |
Vol/bind | 12 |
Udgave nummer | 2 |
Sider (fra-til) | 389-446 |
Antal sider | 58 |
ISSN | 2045-9920 |
DOI | |
Status | Udgivet - jun. 2022 |