TY  - JOUR
AU  - He,Zhiguo
AU  - Xiong,Wei
TI  - Multi-market Delegated Asset Management
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14574
PY  - 2008
Y2  - December 2008
UR  - http://www.nber.org/papers/w14574
L1  - http://www.nber.org/papers/w14574.pdf
N1  - Author contact info:
Zhiguo He
University of Chicago
Booth School of Business
E-Mail: Zhiguo.He@ChicagoBooth.edu

Wei Xiong
Princeton University
Department of Economics
Bendheim Center for Finance
Princeton, NJ  08450
Tel: 609/258-0282
Fax: 609/258-0771
E-Mail: wxiong@princeton.edu
AB  - This paper studies optimal contracting in delegated asset management when a fund manager can exert unobservable effort and take unobservable investment positions in multiple markets. A key insight is that while giving the manager flexibility to invest in multiple markets increases investment efficiency, it weakens the link between fund performance and the manager's effort in his designated market, thus increasing agency cost. Building on this tradeoff, our model explains the existence of funds with narrow investment mandates, and provides a set of testable implications for a varying degree of investment flexibility across funds. These results shed light on capital immobility in financial markets, market segmentation, and the architecture of financial institutions.
ER  -