Penn State University - Smeal College of Business
PSU search
Student Exchange Smeal site map Contact us Accounting faculty directory

Steven Huddart picture
 
Should I exercise my stock options?
 
 
Research
 
Case Studies
 
Courses
 
 
Stock compensation glossary
 
Compensation links
 
Securities law links
 
Tax links
 
 
Office hours and location
 
Facts About The School
 
Home | Previous | Next | Huddart Site Map

Reputation and performance fee effects on portfolio choice by investment advisers


Steven Huddart

This paper examines a two-period model of investment management. Investors reallocate their wealth between two mutual funds managed by different investment advisers after observing the performance of each adviser in the first period. A reputation effect causes one adviser to choose a portfolio in the first period that is extreme given his private information about asset returns. Extreme portfolios are costly for risk-averse advisers and investors because mutual funds are riskier than in one-period or single-adviser settings. Adoption of a performance fee mitigates undesirable reputation effects and results in superior ex ante payoffs to investors.

JEL Classification: G20, J33, L21.

Keywords: compensation, closed-end, fee, investment adviser, open-end.

Journal of Financial Markets Volume 2, Number 3, (August 1999) 227-271.


Steven Huddart
Smeal College of Business, Penn State University, University Park, PA 16802-3603 USA
(814) 863-0048
huddart@psu.edu
vCard
Home | Previous | Next | Huddart Site Map

http://personal.psu.edu/sjh11/Abstracts/Reputation.shtml
was last updated on Tue, Aug 21, 2018.
Today is Thu, Sep 19, 2019.

Unless otherwise noted, all material is:
Copyright ©1995-2018 Steven Huddart. All rights reserved.