Fund managers, career concerns, and asset price volatility

Veronica Guerrieri and Péter Kondor

No 446, Staff Report from Federal Reserve Bank of Minneapolis

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 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, the return on the risky bond has to be high to compensate the uninformed managers for the high risk of being fired. As the default probability changes over time, the reputational premium amplifies price volatility.

Keywords: Asset; pricing (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (6)

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http://www.minneapolisfed.org/research/SR/SR446.pdf

Related works:
Journal Article: Fund Managers, Career Concerns, and Asset Price Volatility (2012)
Working Paper: Fund Managers, Career Concerns, and Asset Price Volatility (2011)
Working Paper: Fund Managers, Career Concerns, and Asset Price Volatility (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:446

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