Efficiently Inefficient Markets for Assets and Asset Management

Nicolae Garleanu, Lasse Heje Pedersen

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Abstrakt

We consider a model where investors can invest directly or search for an asset manager, information about assets is costly, and managers charge an endogenous fee. The efficiency of asset prices is linked to the efficiency of the asset management market: if investors can find managers more easily, more money is allocated to active management, fees are lower, and asset prices are more efficient. Informed managers outperform after fees, uninformed managers underperform after fees, and the net performance of the average manager depends on the number of "noise allocators." Small investors should be passive, but large and sophisticated investors benefit from searching for informed active managers since their search cost is low relative to capital. Hence, managers with larger and more sophisticated investors are expected to outperform.
OriginalsprogEngelsk
TidsskriftJournal of Finance
Vol/bind73
Udgave nummer4
Sider (fra-til)1663-1712
Antal sider50
ISSN0022-1082
DOI
StatusUdgivet - 2018

Emneord

  • Asset management
  • Investment
  • Information
  • Search
  • Efficiency
  • Asset pricing
  • Liquidity

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