Why do investors keep buying underperforming mutual funds? To address this issue, we develop a one-period principal-agent model with a representative investor and a fund manager in an asymmetric information framework. This model shows that the investors perception of the fund plays the key role...

Owners of private companies often invest a substantial share of their net worth in one company, which exposes them to idiosyncratic risk. For US companies we investigate whether owners require compensation for lack of diversification in the form of higher returns to equity. Exposure to...

In this paper, we propose a multivariate market model with returns assumed to follow a multivariate normal tempered stable distribution. This distribution, defined by a mixture of the multivariate normal distribution and the tempered stable subordinator, is consistent with two stylized facts...

This paper deals with the estimation of portfolio returns and Value at Risk (VaR), by using a class of Gaussian mixture distributions. Asset return distributions are frequently assumed to follow a normal or log normal distribution. It also can follow Brownian motion or Geometric Brownian motion...

Capital Assets Pricing Model (CAPM) is the widely tested, accepted and rejected model of asset pricing. From its beginning (1964) it has occupied the prime place and still part of the text books on finance in leading business schools. This study is conducted in Pakistani institutional frame work...

This study aims to analyze and test empirically the influence of corporate financial performance against systematic risk on stocks. The analysis technique used is multiple linear regression. The results showed that the financial performance did not significantly affect the systematic risk of the...

Owners of private companies are often highly underdiversified which exposes them to idiosyncratic risk. We investigate the consequences of underdiversification at the company level. Information on US companies and their owners is obtained from the Survey of Consumer Finances and the Survey of...

Recent empirical evidence suggests that US industrial firms invest heavily in noncash, risky financial assets. Using hand-collected data on financial portfolios of German firms, we show that risky asset holdings are not an anomaly unique to the US. We find that industrial firms in Germany invest...

Empirically, compensation systems generate substantial effort despite weak monetary incentives. We consider reciprocal motivations as a source of incentives. We solve for the optimal contract in the basic principal-agent problem and show that reciprocal motivations and explicit performance-based...