Frictions, Flows, and Fees

Trustees Of Boston University, Boston

Investigators

Abstract

This project investigates the role of fund flows and fees in portfolio choice and asset pricing. The main focus is on (i) understanding how these aspects fit in the existing theory, (ii) developing theoretical tools that make them tractable, and (iii) evaluating the departures from classical results due to flows and fees. Central issues are the extension of duality theory, and the development of asymptotic techniques in the long-horizon and small-fees limits. This research aims to incorporate fund flows and fees - two central aspects of financial intermediation - in mathematical models of financial markets, to understand their agency effects on asset allocation, and their implications for welfare and pricing. This project will help understand the role of financial intermediaries, the incentives created by their fee-based contracts, and their interaction with investors' response through flows, that is subscriptions and redemptions.