Year of Graduation
Competition Among Large Investors and Asset Pricing
This work examines the behaviour of asset prices in the situation when there is imperfect competition and institutional investors are able to understand the impact they have on asset prices during their trading decisions. The following paper include the model of the asset markets when part of the investors have relative performance concerns, i.e. each investor wants to outperform her rivals. The model describes price behaviour in the number of different settings. In particular, it provides closed form solutions for the main quantities. It is shown that investors are ready to invest more in the risky assets as their relative performance concerns grow. The model is extended by allowing institutional investors to specialise their trade only in the specific stock. It is found that relative performance concerns might influence even the stock that is avoided by institutional investors. There is also an examination of the dynamic setting when institutional investors are not able to commit to their trading decisions. It is depicted that time inconsistency disappears for particular levels of relative performance concerns.