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Trading Volume with Career Concerns

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Listed:
  • Dasgupta, Amil
  • Prat, Andrea

Abstract

This Paper shows that trade can occur in a market where all traders are rational and none of them is subject to exogenous shocks. We develop a model of delegated portfolio management that captures key features of the US mutual fund industry and we embed it into an asset-pricing set-up. Fund managers differ in their ability to understand market fundamentals. In equilibrium, the presence of career concerns induces uninformed fund managers to ‘churn’, i.e. to engage in trading even when they face a negative expected return. As churning plays the role of noise trading, the asset market displays non-fully informative prices and positive (and high) trading volume.

Suggested Citation

  • Dasgupta, Amil & Prat, Andrea, 2003. "Trading Volume with Career Concerns," CEPR Discussion Papers 4034, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4034
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    References listed on IDEAS

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    1. Russ Wermers, 2000. "Mutual Fund Performance: An Empirical Decomposition into Stock-Picking Talent, Style, Transactions Costs, and Expenses," Journal of Finance, American Finance Association, vol. 55(4), pages 1655-1703, August.
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    4. Judith Chevalier & Glenn Ellison, 1999. "Career Concerns of Mutual Fund Managers," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 389-432.
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    Cited by:

    1. Alexander Gümbel, 2005. "Trading on Short-Term Information," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 161(3), pages 428-428, September.
    2. Vayanos, Dimitri, 2004. "Flight to quality, flight to liquidity, and the pricing of risk," LSE Research Online Documents on Economics 456, London School of Economics and Political Science, LSE Library.

    More about this item

    Keywords

    career concerns; churning; delegated portfolio management;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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