Asset pricing implications of the mismatch between performance window and benchmark duration
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First author draft
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Authors
Hodor, Idan
Zapatero, Fernando
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First author draft
OA Version
Citation
Hodor, Idan and Zapatero, Fernando, Asset Pricing Implications of Heterogeneous Investment Horizons (April 10, 2022). Available at SSRN: https://ssrn.com/abstract=3852487 or http://dx.doi.org/10.2139/ssrn.3852487
Abstract
Short performance windows shrink fund managers' investment horizons well below
value investors' long-term investment mandates. We unravel that the frictions tied to
the asset management industry are responsible for the recent empirical ndings show-
ing that the risk premium, volatility, and Sharpe ratio on short-term dividend strips
are higher than long-term dividend strips | ndings that are at odds with the lead-
ing equilibrium asset pricing models. The interplay between fund managers' relative
performance objective and short-term performance window is the primary equilibrium
channel, which remains robust to various extensions. Our continuous-time setup admits
closed-form expressions and is supported by additional empirical evidence.