Reputation and performance fee effects on portfolio choice by investment advisers

Research output: Contribution to journalArticle

18 Citations (Scopus)

Abstract

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.

Original languageEnglish (US)
Pages (from-to)227-271
Number of pages45
JournalJournal of Financial Markets
Volume2
Issue number3
DOIs
StatePublished - Jan 1 1999

Fingerprint

Investors
Fees
Portfolio choice
Mutual funds
Reputation effect
Wealth
Asset returns
Investment management
Risk-averse
Private information

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Cite this

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Reputation and performance fee effects on portfolio choice by investment advisers. / Huddart, Steven J.

In: Journal of Financial Markets, Vol. 2, No. 3, 01.01.1999, p. 227-271.

Research output: Contribution to journalArticle

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