This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. American Economic Review
  4. August 2012
  5. Fund Managers, Career Concerns, and Asset Price Volatility

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Fund Managers, Career Concerns, and Asset Price Volatility

  • Veronica Guerrieri
  • Péter Kondor
American Economic Review
vol. 102, no. 5, August 2012
(pp. 1986–2017)
Download Full Text PDF

Abstract

We propose a model of delegated portfolio management with career concerns. Investors hire fund managers to invest their capital either in risky bonds or in riskless assets. Some managers have superior information on default risk. Based on past performance, investors update beliefs on managers and make firing decisions. This leads to career concerns that affect managers' investment decisions, generating a countercyclical "reputational premium." When default risk is high, return on bonds is high to compensate uninformed managers for the high risk of being fired. As default risk changes over time, the reputational premium amplifies price volatility. (JEL G11, G12, G23, L84)

Citation

Guerrieri, Veronica, and Péter Kondor. 2012. "Fund Managers, Career Concerns, and Asset Price Volatility." American Economic Review 102 (5): 1986–2017. DOI: 10.1257/aer.102.5.1986

Additional Materials

JEL Classification

  • G11 Portfolio Choice; Investment Decisions
  • G12 Asset Pricing; Trading volume; Bond Interest Rates
  • G23 Pension Funds; Other Private Financial Institutions; Institutional Investors
  • L84 Personal, Professional, and Business Services