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Trading volume with career concerns

Dasgupta, Amil and Prat, Andrea (2003) Trading volume with career concerns. 4034. Centre for Economic Policy Research, 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
Library of Congress subject classification: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information
Sets: Departments > Accounting and Finance
Collections > Economists Online
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Departments > Economics
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 4034
Date Deposited: 02 Jun 2008 08:42
URL: http://eprints.lse.ac.uk/5214/

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