Abstract

http://ssrn.com/abstract=1965538
 
 

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Informed Trading and High Compensation in Finance


Vincent Glode


University of Pennsylvania - The Wharton School

Richard Lowery


University of Texas-Austin

September 11, 2013


Abstract:     
We propose a model in which financial firms compete for skilled workers who can be assigned to over-the-counter trading or to more socially productive activities. Because of negative externalities they impose on rival firms, traders earn more than the profits they generate for their employer and more than what other workers with similar skills earn. However, when firms can easily interchange workers across tasks, high trader compensation can also drive up the compensation of other skilled workers in finance above their marginal product. We discuss the impact of restricting compensation on the efficiency of the allocation of workers.

Number of Pages in PDF File: 45

Keywords: Traders, Compensation, Externalities, Rent-Seeking, Financial Expertise

JEL Classification: G20, J31, J44

working papers series


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Date posted: November 29, 2011 ; Last revised: September 12, 2013

Suggested Citation

Glode, Vincent and Lowery, Richard, Informed Trading and High Compensation in Finance (September 11, 2013). Available at SSRN: http://ssrn.com/abstract=1965538 or http://dx.doi.org/10.2139/ssrn.1965538

Contact Information

Vincent Glode (Contact Author)
University of Pennsylvania - The Wharton School ( email )
3641 Locust Walk
Philadelphia, PA 19104-6365
United States
Richard Lowery
University of Texas-Austin ( email )
Red McCombs School of Business
Austin, TX 78712
United States
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