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 the default risk. Looking at the past performance, investors update beliefs on their managers and make firing decisions. This leads to career concerns which a¤ect investment decisions, generating a counter-cyclical 'reputational premium.' When default risk is high, the bond’s return 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.
80 days ago - National Bureau of Economic Research Working Papers
We develop a dynamic equilibrium model of asset markets affected by adverse selection. There exists a unique equilibrium where better assets trade at higher prices but in less...
5 hours ago - PR Newswire: Banking & Financial Services
This quarterly earnings release should be read in conjunction with our unaudited second quarter 2012 Report to Shareholders for the three and six months ended April 30, 2012...
