Reputation Concerns and Slow-Moving Capital

Steven Malliaris and Hongjun Yan

The Review of Asset Pricing Studies, 2021, vol. 11, issue 3, 580-609

Abstract: We analyze fund managers’ reputation concerns in an equilibrium model, in which we tie together a number of seemingly unrelated phenomena. The model shows that because of reputation concerns, hedge fund managers, especially those with an average reputation, prefer strategies with negatively skewed return distributions. One subtle consequence of this preference is that capital sometimes appears slow moving, leaving profitable investment opportunities unexploited, yet other times appears fast moving, causing large capital relocation and price fluctuations in the absence of fundamental news. More broadly, the analysis demonstrates a limitation of market discipline: fund managers may distort their investments precisely because of market discipline.

JEL-codes: G11 G23 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:oup:rasset:v:11:y:2021:i:3:p:580-609.

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