Abstract
This paper investigates how a linear contract offered to a portfolio manager affects her incentives to acquire precise information. I show that increasing the manager's portfolio share increases her demand for precise information. This result contrasts with the existing irrelevance results where the manager's portfolio share does not affect her precision choice. The irrelevance result relies on the manager facing a constant asset price, regardless of her demand. In a noisy rational expectations framework, increasing the manager's share decreases her demand and results in a less informative asset price. Thus, the manager gathers more precise information when offered a larger fraction of portfolio returns.
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Ozerturk, S. Equilibrium Incentives to Acquire Precise Information in Delegated Portfolio Management. Journal of Financial Services Research 25, 25–36 (2004). https://doi.org/10.1023/B:FINA.0000008663.41246.2c
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DOI: https://doi.org/10.1023/B:FINA.0000008663.41246.2c