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Fund Managers, Career Concerns, and Asset Price Volatility

  • Veronica Guerrieri
  • Péter Kondor

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14898.

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Date of creation: Apr 2009
Date of revision:
Publication status: published as Veronica Guerrieri & Peter Kondor, 2012. "Fund Managers, Career Concerns, and Asset Price Volatility," American Economic Review, American Economic Association, vol. 102(5), pages 1986-2017, August.
Handle: RePEc:nbr:nberwo:14898
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