Fund Managers, Career Concerns, and Asset Price Volatility

Veronica Guerrieri and Péter Kondor

American Economic Review, 2012, vol. 102, issue 5, 1986-2017

Abstract: We propose a model of delegated portfolio management with career concerns. Investors hire fund managers to invest their capital either in risky bonds or in riskless assets. Some managers have superior information on default risk. Based on past performance, investors update beliefs on managers and make firing decisions. This leads to career concerns that affect managers' investment decisions, generating a countercyclical "reputational premium." When default risk is high, return on bonds is high to compensate uninformed managers for the high risk of being fired. As default risk changes over time, the reputational premium amplifies price volatility. (JEL G11, G12, G23, L84)

Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (65)

Downloads: (external link)
http://www.aeaweb.org/articles.php?doi=10.1257/aer.102.5.1986 (application/pdf)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: Fund Managers, Career Concerns, and Asset Price Volatility (2011)
Working Paper: Fund managers, career concerns, and asset price volatility (2010)
Working Paper: Fund Managers, Career Concerns, and Asset Price Volatility (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:102:y:2012:i:5:p:1986-2017

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().