Reputation Concerns and Slow-Moving Capital

Abstract:     
This paper analyzes fund managers' reputation concerns in a dynamic equilibrium model. It shows that reputation concerns induce a preference over the skewness of strategy returns. The preference is non-monotonic in the manager's reputation level: While managers with average reputations prefer strategies with negatively skewed return distributions, those with very high or very low reputations prefer the opposite. A subtle but natural consequence of adopting negatively skewed strategies is that after poor performance, managers' reputations recover slowly, leading to the phenomenon that capital sometimes appears slow moving, leaving attractive opportunities unexploited for an extended period of time.

Number of Pages in PDF File: 32

Keywords: Reputation, Slow-moving capital, Career concern

JEL Classification: G11, G23

working papers series