Mark M. Westerfield
Published and Forthcoming Papers
We introduce a tractable dynamic monitoring technology into a continuous-time moral-hazard problem. Our results help explain empirical findings on the linkage between termination, performance, pay-performance sensitivity, and monitoring.
We establish straightforward necessary and sufficient conditions for agents making inferior forecasts to survive and to affect prices in a general setting with minimal restrictions on endowments, beliefs, or utility functions.
Investors in most assets are more likely to sell gains than losses, but mutual fund investors do the opposite. Using brokerage data and an experiment, we argue that cognitive dissonance can explain these results and the effects of delegation more generally.
Resource Accumulation Through Economic Ties: Evidence from Venture Capital
We characterize VC firm resources using factor analysis, and we develop a methodology to distinguish motives for coinvestment. Coinvestment is not based on resource similarity; instead it serves to mix value-added resources with capital.
Portfolio Choice with Illiquid Assets
We present a simple model of illiquidity based on trading restrictions of uncertain duration. Uncertainty over trading opportunities is much more important than the simple inability to trade.
Disagreement and Learning in a Dynamic Contracting Model
We present a dynamic contracting model with disagreement and learning. The interaction between incentive provision and learning creates an intertemporal source of “disagreement risk” that alters optimal risk sharing.
With an indefinite horizon, convex compensation (e.g. high-water marks and other "option-like" contracts) do not generate unbounded risk-taking. In a simple portfolio choice model, we show that risk neutral managers act as CRRA investors.
The Price Impact and Survival of Irrational Traders
Price impact and survival are two independent concepts; neither is sufficient for the other. In a simple GE economy, we demonstrate that irrational traders can survive and/or have price impact.
Working Papers and Work in Progress
Dynamic Agency with Capital Budgeting and Volatility Controls
Commitment Risk in Private Partnerships
Quality versus Quantity in Project Choice
FIN 460, Investments.
Updated September 26, 2016