Agency and Institutional Investment

In this paper we summarise and extend the agency-based model of asset pricing of to show that the implied agency effects on asset pricing are too small to be empirically detectable: empirical tests confirm this and we show that the positive findings of are due to their choice of sample. We also derive new empirical implications for the composition of institutional investment portfolios and empirically confirm the major result, that institutional portfolios will be short the minimum variance portfolio.