Beschreibung:
We investigate an asset manager’s choice between an agency trade and a blind principal bid (BPB) for executing a basket of stocks. For the BPB basket, a manager learns the trading cost once an auction process determines the commission. However, an asset manager can also execute a basket as an agency trade instead. In this case, the actual trading cost realized is unknown before execution owing to the uncertainty of the market impact. Our work provides a clear indication that the managers’ behavior is more consistent with prospect theory than with the expected utility theory