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Comment On “Brokerage Commissions, Perquisties, and Delegated portfolio Management” (author: Fei Ding). By Jyh-Bang Jou, Dec. 12, 2008.
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Comment On “Brokerage Commissions, Perquisties, and Delegated portfolio Management” (author: Fei Ding) By Jyh-Bang Jou, Dec. 12, 2008
This paper introduces the role played by brokers in delegated management. It provides theoretic predictions that are most in line with the real world. My major concerns are the organization of this paper and those parts that are not clear to me.
I imagine that the author needs to focus on the case where brokers offer research. Otherwise, I feel that the role played by brokers will be too passive. I recommend that the author use “commission bundle” as the benchmark case. Thus, the original benchmark case will become a special case. Also, the author provides seven theoretical predictions which are separated from the theoretical model section. It is more logic to put the model and those predictions together.
Turning to those parts which I am unable to follow. I can follow the paper until page 11. However, I am unable to derive the two probabilities and the expected values (Equations (3), (4)) shown in page 12. These are straightforward for the author, but may cause troubles to readers. The author had better use one sentence to explain each of these probabilities and expected values.
Some minor comments are as follow: • page 1. In the fourth to the last line, “thus strengthen” should be corrected as “thus strengthening.”
page 2. The words “too convex” and “too concave” are too technical. The author should offer economic explanation for these words.
page 7. I think that “broker monopoly” implies that there is only one single broker in the market rather than one investor sticks with one certain broker. I will thus say that the assumption of “broker monopoly” does not fit into the real world, thus deserving less attention than the competitive case.
page 10. The author can just delete as it is zero by assumption.
page 11. The sentence “… if he trades him.” is confusing. It can be modified as “… if he trades with the broker.”
page 14. Proposition 1. “such fees” are confusing. It can be modified as “commission fees.”
page 14. In the second to the last line, “to spent” should be modified as “to spend.”
page 15. Should use some sentences to explain the payoff given in lemma 1.
page 16. The word “roughly linear” is not precise. Do you mean some portion linear, and some portion “not linear?”
page 17. Given that “R” in Figure 2 (x axis) does not explicitly show in equations (5) and (6), I cannot catch whether the optimal contract is linear or not.
page 18. In the 9th line, “thus” should be modified as “and thus.”
