We study the equilibrium implications of a multi-asset economy in which asset managers’ performance is tied to different benchmarks, reflecting heterogeneity in their investment mandates. Fluctuations in the capital asset managers invest for benchmarking purposes, scaled by the size of the economy, induce price pressure that results in negative spillovers across assets. We characterize a rich structure of asset price comovement within and across benchmarks by analyzing shock elasticities and cross-elasticities of price-dividend ratios. Evidence on the heterogeneity of mutual fund mandates and the benchmarking-induced predictability of return comovement across cap-style and industry-sector portfolios corroborates the model assumptions and predictions.
The paper shows that differences in investment horizons between short-term asset managers and long-term value investors rationalize the empirical puzzle stating that short duration assets have larger risk premium, volatility, and Sharpe ratio than high duration assets.
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This paper shows that future equity contracts are optimal for removing misalignments between early-stage investors and entrepreneurs. In contrast, equity contracts become optimal only when valuations are sufficiently high. The paper characterizes the probability of success and tests early-stage investors’ skills. The analysis detects skill in 12% of first seed-round investors and finds that incubators-accelerators have higher skills than first seed-round investors.
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The paper shows that mining pools' concentration amplifies cryptocurrency volatility and depresses its prices, even when we introduce a pricing bubble. The model builds on the international finance asset pricing literature and connects well with established asset pricing theories.
Mutual fund asset managers’ incentives contracts are dynamic: initially, there is a drive to outperform the index. However, as performance improves, the focus shifts from outperforming to maintaining performance. In equilibrium, expressed in closed form, the active share exhibits a U-shape, and the tracking error an inverted U-shape with the active share at its minimum and tracking error at its maximum when performance equals the benchmark.
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