Skip to main content
Article thumbnail
Location of Repository

The impact on the pricing process of costly active management and performance chasing clients

By R. Bird, L. Casavecchia, P. Pellizzari and Paul Woolley

Abstract

One of the necessary features of markets to produce efficient pricing is competition between information-based investors who quickly impound new information into price. However, a significant proportion of funds invested in today's equity markets are in the hands of managers who pursue a style that utilises little or none of the available information. We simulate such a market where the funds are being managed using the following three investment styles: fundamental, momentum and index. We confirm that the major pricing anomalies that have been highlighted previously in the literature are a natural consequence of competition between managers utilising these three investment styles. More importantly, we show that this situation is unlikely to change as long as markets continue to be dominated by costly active managers with clients who pursue outperformance. © 2010 Springer-Verlag

Topics: HG Finance
Publisher: Springer Verlag
Year: 2011
DOI identifier: 10.1007/s11403-010-0076-4
OAI identifier: oai:eprints.lse.ac.uk:35882
Provided by: LSE Research Online
Download PDF:
Sorry, we are unable to provide the full text but you may find it at the following location(s):
  • http://www.springer.com/econom... (external link)
  • http://eprints.lse.ac.uk/35882... (external link)
  • Suggested articles


    To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.