Reputation Concerns and Slow-Moving Capital

34 Pages Posted: 30 Oct 2008 Last revised: 19 Mar 2015

Steven G. Malliaris

Yale University - International Center for Finance

Hongjun Yan

Driehaus College of Business, DePaul University

Date Written: March 18, 2015

Abstract

Our paper shows that fund managers' reputation concerns induce a preference over the skewness of strategy returns. This preference is non-monotonic in the manager's reputation level: While managers with average reputations prefer negatively skewed strategies, those with very high or very low reputations prefer the opposite. Our model also explains why only negatively skewed strategies tend to suffer from slow-moving capital: A subtle but natural consequence of adopting negatively skewed strategies is that after poor performance, managers' reputations recover slowly. In the meantime, they are unable to raise capital, leaving attractive opportunities unexploited.

Keywords: Reputation, Slow-moving capital, Career concern

JEL Classification: G11, G23

Suggested Citation

Malliaris, Steven G. and Yan, Hongjun, Reputation Concerns and Slow-Moving Capital (March 18, 2015). AFA 2011 Denver Meetings Paper; Yale ICF Working Paper No. 08-26. Available at SSRN: https://ssrn.com/abstract=1291872 or http://dx.doi.org/10.2139/ssrn.1291872

Steven G. Malliaris

Yale University - International Center for Finance ( email )

Box 208200
New Haven, CT 06520
United States

HOME PAGE: http://sites.google.com/site/stevenmalliaris/

Hongjun Yan (Contact Author)

Driehaus College of Business, DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States

HOME PAGE: http://sites.google.com/site/hongjunyanhomepage/

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