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dc.contributor.authorMatsen, Egil
dc.date.accessioned2018-05-16T12:49:41Z
dc.date.available2018-05-16T12:49:41Z
dc.date.issued2005
dc.identifier.isbn82-7553-336-8
dc.identifier.isbn82-7553-337-6
dc.identifier.issn0801-2504
dc.identifier.issn1502-8143
dc.identifier.urihttp://hdl.handle.net/11250/2498433
dc.description.abstractThis paper investigates the allocation decision of an investor with two projects. Separate managers control the mean return from each project, and the investor may or may not observe the managers’ actions. We show that the investor’s risk-return trade-off may be radically different from a standard portfolio choice setting, even if managers’ actions are observable and enforceable. In particular, feedback effects working through optimal contracts and effort levels imply that expected terminal wealth is nonlinear in initial wealth allocation. The optimal portfolio may involve very little diversification, despite projects that are highly symmetric in the underlying model. We also show that moral hazard in one of the projects need not imply lower allocation to that project. Expected returns are generally lower than under the first-best, but the optimal contract shifts more of the idiosyncratic risk in the hidden action project to the manager in charge of it. The minimum-variance position of the investor’s (net) terminal wealth would in most cases involve a portfolio shift towards the hidden action project, and there are plausible cases where this would dominate the overall effect on the second-best optimal portfolio when comparing with the first-best.nb_NO
dc.language.isoengnb_NO
dc.publisherNorges Banknb_NO
dc.relation.ispartofseriesWorking Papers;15/2005
dc.rightsAttribution-NonCommercial-NoDerivatives 4.0 Internasjonal*
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/4.0/deed.no*
dc.subjectJEL: D81nb_NO
dc.subjectJEL: D82nb_NO
dc.subjectJEL: G11nb_NO
dc.subjectportfolio choicenb_NO
dc.subjectdiversificationnb_NO
dc.subjectoptimal contractsnb_NO
dc.titlePortfolio Choice When Managers Control Returnsnb_NO
dc.typeWorking papernb_NO
dc.description.versionpublishedVersionnb_NO
dc.subject.nsiVDP::Samfunnsvitenskap: 200::Økonomi: 210::Samfunnsøkonomi: 212nb_NO
dc.source.pagenumber31nb_NO


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Attribution-NonCommercial-NoDerivatives 4.0 Internasjonal
Except where otherwise noted, this item's license is described as Attribution-NonCommercial-NoDerivatives 4.0 Internasjonal