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Reputation and price dynamics in financial markets

Dasgupta, Amil and Prat, Andrea (2005) Reputation and price dynamics in financial markets. 222. Society for Economic Dynamics, Connecticut, USA.

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Abstract

What are the equilibrium features of a dynamic Þnancial market where traders care about their reputation for ability? We modify a standard sequential trading model to allow for career concerns. We show that the market must be informationally inefficient: there is no equilibrium in which prices converge to the true value, even in the long run. This Þnding, which stands in sharp contrast with the results for standard Þnancial markets, is due to the fact that our traders face an endogenous incentive to behave in a conformist manner. We also show that each asset carries an endogenous reputational beneÞt or cost, which, if asset supply is sufficiently limited, translates into a price premium or discount and can generate bubbles.

Item Type: Monograph (Other)
Official URL: http://www.economicdynamics.org
Additional Information: © 2005 the authors
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Sets: Departments > Accounting and Finance
Collections > Economists Online
Departments > Economics
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 222
Date Deposited: 02 Jun 2008 09:51
URL: http://eprints.lse.ac.uk/5222/

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