【Abstract】

This paper proposes a model of delegated portfolio management, in which professional fund managers face a value-at-risk (VaR) constraint. We show that the existence of the VaR constraint impairs the optimal risk sharing in both the trading and delegation stages. As a result, the VaR constraint leads household investors to take excessive risk and may cause the prices of fundamentally uncorrelated assets to be correlated.

【Keywords】

Delegated portfolio management, Contagion, VaR constraint

【Authors】

Guo Rui, Jiang Ying and Li Ao, Hanqing Advanced Institute of Economics and Finance, Renmin University of China

Qiu Zhigang, IMI Research Fellow, School of Finance, Renmin University of China

Wang Hefei, International College, Renmin University of China