Trading volume with career concerns

Dasgupta, Amil ORCID: 0000-0001-8474-9470 and Prat, Andrea (2003) Trading volume with career concerns. . Centre for Economic Policy Research (Great Britain), London, UK.

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Abstract

This Paper shows that trade can occur in a market where all traders are rational and none of them is subject to exogenous shocks. We develop a model of delegated portfolio management that captures key features of the US mutual fund industry and we embed it into an asset-pricing set-up. Fund managers differ in their ability to understand market fundamentals. In equilibrium, the presence of career concerns induces uninformed fund managers to ‘churn’, i.e. to engage in trading even when they face a negative expected return. As churning plays the role of noise trading, the asset market displays non-fully informative prices and positive (and high) trading volume.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://www.cepr.org
Additional Information:	© 2003 Amil Dasgupta and Andrea Prat
Divisions:	STICERD Economics
Subjects:	H Social Sciences > HG Finance H Social Sciences > HB Economic Theory
JEL classification:	D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information
Date Deposited:	02 Jun 2008 08:42
Last Modified:	01 Oct 2024 03:16
URI:	http://eprints.lse.ac.uk/id/eprint/5214

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