VGSF - WU Vienna - LC

Dimitri Vayanos, London School of Economics

Campus WU D3.0.233 11:00 - 12:30

Organizer VGSF

As part of the ser­ies of the "Fin­ance Re­search Sem­inar", VGSF wel­comes Di­mitri Vay­anos from the Lon­don School of Eco­nom­ics to present his re­search pa­per.
Per­sonal Webpage

Pa­per

As­set Man­age­ment Con­tracts and Equi­lib­rium Prices

We study how the agency re­la­tion­ship between in­vestors and as­set man­agers af­fects equi­lib­rium prices. We be­gin with a static con­tract­ing model, in which the op­timal con­tract bounds man­agers' port­fo­lio risk regard­less of their private in­form­a­tion. We embed that model into an equi­lib­rium as­set-­pri­cing model with noise traders and over­lap­ping gen­er­a­tions of in­vestors and man­agers. Risk lim­its gen­er­ate an in­ver­ted risk-re­turn re­la­tion­ship: over­val­ued as­sets have high volat­il­ity be­cause man­agers buy them dur­ing bull mar­kets to meet risk lim­its. Be­cause over­val­ued as­sets have higher share price and volat­il­ity, risk lim­its are more con­strain­ing when trad­ing against over­valu­ation, bi­as­ing the ag­greg­ate mar­ket up­ward.



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