Fund Managers, Career Concerns, and Asset Price Volatility

41 Pages Posted: 20 Apr 2009  

Veronica Guerrieri

University of Chicago - Booth School of Business

Peter Kondor

London School of Economics & Political Science (LSE); Central European University (CEU)

Multiple version iconThere are 4 versions of this paper

Date Written: April 2009

Abstract

We propose a model where investors hire fund managers to invest 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, uninformed managers prefer to invest in riskless assets to reduce the probability of being fired. As the economic and financial conditions change, the reputational premium amplifies the reaction of prices and capital flows.

Suggested Citation

Guerrieri, Veronica and Kondor, Peter, Fund Managers, Career Concerns, and Asset Price Volatility (April 2009). NBER Working Paper No. w14898. Available at SSRN: https://ssrn.com/abstract=1391845

Veronica Guerrieri (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Peter Kondor

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://fmg.lse.ac.uk/~kondor

Central European University (CEU) ( email )

Nador utca 9
Budapest, H-1051
Hungary

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