A Study of Delegated Portfolio Management Based on Overconfidence

The problem of optimal portfolio selection and incentive under the condition of the agent's overconfidence is researched in this paper. It is shown in this paper that the overconfidence level of the agent has significant effects on the agent's optimal portfolio selection and incentive. In delegated portfolio management, if the agent is overconfident, the principal's expectation utility would be increased and the principal-agent cost would be cut down.