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Career Risk and Market Discipline in Asset Management

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Abstract

Using hand-collected data on 1,627 hedge fund employees, we investigate the role of talent and luck in their careers. Upon entry in the hedge fund industry, careers accelerate, especially for employees with high-quality education and asset management experience. However, those who achieve high-ranking positions tend to face significant and permanent career setbacks if their fund is liquidated after persistently under-performing its benchmark. Hence, the “scarring effects” of fund liquidation appear to reflect a loss of reputation rather than the materialization of career risk. Our results reveal a new facet of market discipline in asset management, operating via the labor market.

Suggested Citation

  • Andrew Ellul & Marco Pagano & Annalisa Scognamiglio, 2017. "Career Risk and Market Discipline in Asset Management," CSEF Working Papers 489, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:489
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    References listed on IDEAS

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    1. Ulf Axelson & Philip Bond, 2015. "Wall Street Occupations," Journal of Finance, American Finance Association, vol. 70(5), pages 1949-1996, October.
    2. Viral Acharya & Marco Pagano & Paolo Volpin, 2016. "Seeking Alpha: Excess Risk Taking and Competition for Managerial Talent," Review of Financial Studies, Society for Financial Studies, vol. 29(10), pages 2565-2599.
    3. Stephen J. Brown, 2001. "Careers and Survival: Competition and Risk in the Hedge Fund and CTA Industry," Journal of Finance, American Finance Association, vol. 56(5), pages 1869-1886, October.
    4. Eckbo, B. Espen & Thorburn, Karin S. & Wang, Wei, 2016. "How costly is corporate bankruptcy for the CEO?," Journal of Financial Economics, Elsevier, vol. 121(1), pages 210-229.
    5. Axelson, Ulf & Bond, Philip, 2015. "Wall Street occupations," LSE Research Online Documents on Economics 37448, London School of Economics and Political Science, LSE Library.
    6. Philip Oreopoulos & Till von Wachter & Andrew Heisz, 2012. "The Short- and Long-Term Career Effects of Graduating in a Recession," American Economic Journal: Applied Economics, American Economic Association, vol. 4(1), pages 1-29, January.
    7. Benmelech, Efraim & Frydman, Carola, 2015. "Military CEOs," Journal of Financial Economics, Elsevier, vol. 117(1), pages 43-59.
    8. Graham, John R. & Harvey, Campbell R. & Puri, Manju, 2013. "Managerial attitudes and corporate actions," Journal of Financial Economics, Elsevier, vol. 109(1), pages 103-121.
    9. Amit Goyal & Sunil Wahal, 2008. "The Selection and Termination of Investment Management Firms by Plan Sponsors," Journal of Finance, American Finance Association, vol. 63(4), pages 1805-1847, August.
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    More about this item

    Keywords

    careers; hedge funds; asset managers; market discipline; scarring effects.;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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