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Managerial Incentives and Financial Contagion, Sujit Chakravorti, Subir Lall

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Abstract
This paper proposes a framework for comovements of asset prices with seemingly unrelated fundamentals, as an outcome of optimal portfolio strategies by fund managers. In emerging markets, dedicated managers outperforming a benchmark index and global managers maximizing absolute returns lead to systematic interactions between asset prices, without asymmetric information. The model determines optimal portfolio weights, the incidence of relative value strategies, and the systematic deviation of prices from fundamentals with limits to arbitraging this differential. Managerial compensation contracts, optimal at the firm level, may lead to inefficiencies at the macroeconomic level. Conditions are identified when shocks in one emerging market affect others
Table Of Contents
""Contents""; ""I. INTRODUCTION""; ""II. A REVIEW OF THE LITERATURE""; ""III. THE MODEL""; ""A. The Investment Horizon""; ""B. The Benchmark Index""; ""C. Local Investors as the Source of Uncertainty""; ""D. Dedicated Fund Manager�s Compensation Structure""; ""E. Global Opportunistic Managers""; ""IV. THE EQUILIBRIUM""; ""A. Dedicated (Positive Cash Holdings) and Opportunistic Managers""; ""B. Dedicated Manager (Zero Cash Holdings) and Opportunistic Manager""; ""V. CONCLUSION""; ""APPENDIX: PROOFS OF PROPOSITIONS""
Language
eng
Literary Form
non fiction
Note
Description based upon print version of record
Physical Description
1 online resource (37 p.)
Specific Material Designation
remote
Form Of Item
online
Isbn
9786613798596

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