Workshop Series: Simon Gervais
We construct and analyze a model of delegated portfolio management in which money managers signal their investment skills via their choice of transparency for their fund. We show that a natural equilibrium is one in which high- and low-skill managers pool in opaque funds, while medium-skill managers separate in transparent funds. In this equilibrium, high-skill managers rely on their eventual performance to separate from low-skill managers over time, saving the monitoring costs associated with transparency. In contrast, medium-skill managers rely on transparency to separate from low-skill managers, especially when it is difficult for investors to tell them apart through performance alone. Low-skill managers prefer mimicking high-skill managers in opaque funds in the hope of replicating their performance and compensation. The model yields several novel empirical predictions that contrast transparent funds (e.g., mutual funds) and opaque funds (e.g., hedge funds).
Simon Gervais is an Associate 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 regulation of financial markets, and the role of financial intermediaries. In 2001, Professor Gervais received the Barclays Global Investors/Michael Brennan Award for the best paper in the Review of Financial Studies. Currently, Professor Gervais serves as an Associate Editor of Management Science and the Journal of Financial Intermediation, and on the Economic Advisory Committee of the Financial Industry Regulatory Authority (FINRA).