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Fund Managers, Career Concerns, and Asset Price Volatility

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  • Veronica Guerrieri
  • Péter Kondor

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

  • Veronica Guerrieri & Péter Kondor, 2009. "Fund Managers, Career Concerns, and Asset Price Volatility," NBER Working Papers 14898, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:14898
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    More about this item

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G1 - Financial Economics - - General Financial Markets

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