Economics of Career Concerns and Financial Markets

My book solves two important puzzles in the …nancial economics literature using career concerns approach. First, I analyze why fund managers invest in short-maturity assets when they could obtain larger pro…ts in assets with longer maturity. Chapter 1 provides an explanation to this fact based on labor contracts signed between institutional investors and fund managers. A numerical analysis characterizes situations in which young (old) managers prefer short-maturity (long-maturity) positions. Second, Istudy why traders invest under asymmetric information. In order to answer this question, Chapter 2 includes a model of delegated portfolio management. My model then strengths previous explanations to the trade puzzle, predicting an increasing trade activity as long as institutional investors with intense delegation play an increasing role in fi…nancial markets. Finally, I analyze the e¤ect of the career concerns on fi…nancial information disclosure. In the context of auditing relationship, the main result is that the earning management and the audit effort are decreasing over the time because the incentives to build a reputation also decline for both agents.