Trading Volume with Career Concerns

Andrea Prat and Amil Dasgupta

No 4034, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This Paper shows that trade can occur in a market where all traders are rational and none of them is subject to exogenous shocks. We develop a model of delegated portfolio management that captures key features of the US mutual fund industry and we embed it into an asset-pricing set-up. Fund managers differ in their ability to understand market fundamentals. In equilibrium, the presence of career concerns induces uninformed fund managers to ?churn?, i.e. to engage in trading even when they face a negative expected return. As churning plays the role of noise trading, the asset market displays non-fully informative prices and positive (and high) trading volume.

Keywords: Delegated portfolio management; Career concerns; Churning (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Date: 2003-09
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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