We study the joint determination of fund managers' contracts and equilibrium asset prices. Because of agency frictions …, investors make managers' fees more sensitive to performance and benchmark performance against a market index. This makes … managers unwilling to deviate from the index and exacerbates price distortions. Because trading against overvaluation exposes …

individual investor sentiment toward closed end funds and other securities. The theory implies that discounts on various funds …

investment, and allows managers to charge higher fees to investors who trust them more. Money managers compete for investor funds … by setting their fees, but because of trust the fees do not fall to costs. In the model, 1) managers consistently … involve sharing of expected returns between managers and investors, with higher fees in riskier products, 3) managers pander …