@article{b35fb3d31b5b458f987087c27fd6ddd5,
title = "Is There Too Much Benchmarking in Asset Management?",
abstract = "We propose a tractable model of asset management in which benchmarking arises endogenously, and analyze its welfare consequences. Fund managers{\textquoteright} portfolios are not contractible and they incur private costs in running them. Incentive contracts for fund managers create a pecuniary externality through their effect on asset prices. Benchmarking inflates asset prices and creates crowded trades. The crowding reduces the effectiveness of benchmarking in incentive contracts for others, which fund investors fail to account for. A social planner, recognizing the crowding, opts for contracts with less benchmarking and less incentive provision. The planner also delivers lower asset management costs.",
author = "Kashyap, {Anil K.} and Natalia Kovrijnykh and Jian Li and Anna Pavlova",
note = "Funding Information: * Kashyap: Booth School of Business, University of Chicago, National Bureau of Economic Research, and Centre for Economic Policy Research (email: anil.kashyap@chicagobooth.edu); Kovrijnykh: W. P. Carey School of Business, Arizona State University (email: natalia.kovrijnykh@asu.edu); Li: Columbia Business School (email: jl5964@columbia.edu); Pavlova: London Business School and Centre for Economic Policy Research (email: apav-lova@london.edu). Pierre-Olivier Gourinchas and Sylvain Chassang were the coeditors for this article. We have benefited from comments and suggestions by seminar and conference participants at Arizona State University, Chicago Booth, Columbia University, Federal Reserve Board of Governors, Higher School of Economics, INSEAD, London Business School, NYU Stern, University of Oxford, UK Financial Conduct Authority, Virtual Finance Theory Seminar, CERGE-EI Macro Workshop, JHU Carey Finance Conference, NBER Long-Term Asset Management meeting, NBES Conference, SAET in Ischia, SED in Minneapolis, SFS Cavalcade North America, WFA 2021, as well as comments of Adrian Buss, Hector Chade, Eduardo Davila, Alp Simsek, Dimitri Vayanos, Ming Yang, and three anonymous referees. This research has been supported by a grant from the Alfred P. Sloan Foundation to the Macro Financial Modeling project at the University of Chicago. The views expressed here are ours only and not necessarily those of the institutions with which we are affiliated. Funding Information: We have benefited from comments and suggestions by seminar and conference participants at Arizona State University, Chicago Booth, Columbia University, Federal Reserve Board of Governors, Higher School of Economics, INSEAD, London Business School, NYU Stern, University of Oxford, UK Financial Conduct Authority, Virtual Finance Theory Seminar, CERGE-EI Macro Workshop, JHU Carey Finance Conference, NBER Long-Term Asset Management meeting, NBES Conference, SAET in Ischia, SED in Minneapolis, SFS Cavalcade North America, WFA 2021, as well as comments of Adrian Buss, Hector Chade, Eduardo Davila, Alp Simsek, Dimitri Vayanos, Ming Yang, and three anonymous referees. This research has been supported by a grant from the Alfred P. Sloan Foundation to the Macro Financial Modeling project at the University of Chicago. The views expressed here are ours only and not necessarily those of the institutions with which we are affiliated. Publisher Copyright: {\textcopyright} 2023 American Economic Association. All rights reserved.",
year = "2023",
month = apr,
doi = "10.1257/aer.20210476",
language = "English (US)",
volume = "113",
pages = "1112--1141",
journal = "American Economic Review",
issn = "0002-8282",
publisher = "American Economic Association",
number = "4",
}