Location of Repository

Fund Managers, Career Concerns, and Asset Price Volatility

By Veronica Guerrieri and Péter Kondor

Abstract

We propose a model where investors hire fund managers to invest either in risky bonds or in riskless assets. Some managers have superior information on the default probability. Looking at the past performance, investors update beliefs on their managers and make firing decisions. This leads to career concerns which affect investment decisions, generating a positive or negative "reputational premium". For example, when the default probability is high, uninformed managers prefer to invest in riskless assets to reduce the probability of being fired. As the economic and financial conditions change, the reputational premium amplifies the reaction of prices and capital flows.

OAI identifier:

Suggested articles

Preview


To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.