The sum of our evidence highlights the profound impact that
imposed portfolio constraints have on asset manager behavior.
Mandated portfolio requirements and constraints are not without
merit or justification, but we must recognize their onerous nature
and the distortion these constraints have on observed behavior.
Most critically, we must take this into account when forming any
inference regarding observed portfolio choice decisions under
these constraints and mapping those constrained decisions to true
We would like to thank Christopher Polk and Francisco Gomes for
helpful comments and suggestions. We are grateful for funding
from the National Science Foundation and the Paul Woolley
Centre at the London School of Economics. We also gratefully
acknowledge funding support from the United Kingdom Institute
for Quantitative Research (INQUIRE).
Lauren Cohen, PhD, is the L. E. Simmons Chaired Professor of
Business Administration at Harvard Business School and a research
associate at the National Bureau of Economic Research. Contact him
Dong Lou, PhD, is an associate professor of finance at the London
School of Economics and a research affiliate at the Center for
Economic Policy Research.
Christopher Malloy, PhD, is the Sylvan C. Coleman Chaired Professor
of Financial Management at Harvard Business School and a faculty
research fellow at the National Bureau of Economic Research.
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