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Career concerns and investment maturity in mutual funds

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  • Portilla, Yolanda

Abstract

An important puzzle in financial economics is why fund managers invest in short-maturity assets when they could obtain larger profits in assets with longer maturity. This work provides an explanation to this fact based on labor contracts signed between institutional investors and fund managers. Using a career concern setup, we examine how the optimal contract design, in the presence of both explicit and implicit incentives, affects the fund managers decisions on investment horizons. A numerical analysis characterizes situations in which young (old) managers prefer short-maturity (long-maturity) positions. However, when including multitask analysis, we find that career concerned managers are bolder and also prefer assets with long maturity.

Suggested Citation

  • Portilla, Yolanda, 2009. "Career concerns and investment maturity in mutual funds," UC3M Working papers. Economics we091106, Universidad Carlos III de Madrid. Departamento de Economía.
    • Handle: RePEc:cte:werepe:we091106
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    References listed on IDEAS

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    1. Laura Mayoral, 2006. "Further Evidence on the Statistical Properties of Real GNP," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(s1), pages 901-920, December.
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    5. Judith Chevalier & Glenn Ellison, 1999. "Career Concerns of Mutual Fund Managers," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(2), pages 389-432.
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    More about this item

    Keywords

    Investment maturity;

    JEL classification:

    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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