Fund Managers, Career Concerns, and Asset Price Volatility

Péter Kondor and Veronica Guerrieri

No 8454, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 the default risk. Looking at the past performance, investors update beliefs on their managers and make firing decisions. This leads to career concerns which a¤ect investment decisions, generating a counter-cyclical 'reputational premium.' When default risk is high, the bond?s return 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.

Keywords: Amplification; Career concerns; Delegated portfolio management (search for similar items in EconPapers)
JEL-codes: D53 D8 G1 (search for similar items in EconPapers)
Date: 2011-06
New Economics Papers: this item is included in nep-cta
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Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Fund Managers, Career Concerns, and Asset Price Volatility (2012)
Working Paper: Fund managers, career concerns, and asset price volatility (2010)
Working Paper: Fund Managers, Career Concerns, and Asset Price Volatility (2009)
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