Topic: Money Management and Real Investment

Speaker: Simon Gervais, Professor, Fuqua School of Business at Duke University

Time: 10:00am-11:30am, March 1

Location: 4-101

Abstract:

We propose and analyze an equilibrium model of money management in which the asset allocation decisions of money managers affect the production decisions of firms. The model produces two main results. First, comparing the performance of money managers to that of the overall market portfolio becomes less appropriate as investors (endogenously) choose to delegate more of their money to them. Indeed, as money managers control more money, their holdings get closer to the market portfolio, making it less likely that they outperform it. Second, although money managers may be outperformed by the market portfolio after their fees are taken into account, it is optimal for investors to hire their services. This is because money managers prompt a more efficient allocation of capital, making the economy more productive and firms more valuable in the process. In fact, as we show, the presence of money managers can improve the welfare of all investors, whether or not these investors choose to delegate their investment decisions to money managers.

About the speaker:

Simon Gervais is a Full Professor of Finance at The Fuqua School of Business.  Prior to joining Fuqua in 2003, he was an Assistant Professor of Finance at the Wharton School of the University of Pennsylvania.  He received his Ph.D. in finance from the University of California at Berkeley in 1997.  Professor Gervais’ research, which encompasses behavioral finance, corporate finance, and financial markets, has been published in leading finance and academic journals. Specifically, he studies the effects of behavioral biases on the decisions of firms and individuals, the role and impact of ethics in financial markets, and the functioning of the money management industry. Professor Gervais has received the Barclays Global Investors/Michael Brennan Award for the best paper in the Review of Financial Studies. He has also received awards for his teaching in daytime MBA and executive MBA programs. Professor Gervais currently serves as an Associate Editor of the Journal of Financial Intermediation and as President of the Financial Intermediation Research Society (FIRS), and served on the Economic Advisory Committee of the Financial Industry Regulatory Authority (FINRA) from 2010 until 2016.