Essays on economics of career concerns and financial markets

Abstract

An important puzzle in nancial economics is why fund managers invest in short-maturity assets when they could obtain larger pro ts 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, a¤ects the fund manager s decisions on investment hori- zons. A numerical analysis characterizes situations in which young (old) managers prefer short-maturity (long-maturity) positions. However, when including multi- task analysis, we nd that career concerned managers are bolder and also prefer assets with long maturity