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Risk Incentives in Financial Institutions and Financial Instability

Objective

The main objective of this research project is to develop a new framework for the study of the informational frictions that separate investors from sophisticated traders operating in complete markets. I plan to develop a model of “generalized risk-shifting,” in which traders in complete markets can secretly take fair bets with any arbitrary distribution. The goal is to study the interplay of this generalized risk-shifting with traders’ career concerns. When investors learn about trading skills from observing traders’ realized returns, taking exposures on risk factors with rare adverse realizations may help a trader temporarily improve her reputation and attract more funds. The first intermediary step of this project consists in fully characterizing the payoff functions that lead a trader to gamble inefficiently in a one-period setting. The second step consists in solving for contracts that are risk-shifting-proof in a dynamic career concern environment. Finally, the model is well suited to be taken to hedge fund data
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Principal Investigator

Guillaume Plantin (Dr.)

Host institution

FONDATION NATIONALE DES SCIENCES POLITIQUES

Address

Rue Saint Guillaume 27
75337 Paris

France

Activity type

Higher or Secondary Education Establishments

EU Contribution

€ 263 260,31

Principal Investigator

Guillaume Plantin (Dr.)

Administrative Contact

Olivier Romeo (Mr.)

Beneficiaries (2)

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FONDATION NATIONALE DES SCIENCES POLITIQUES

France

EU Contribution

€ 263 260,31

FONDATION JEAN-JACQUES LAFFONT,TOULOUSE SCIENCES ECONOMIQUES

France

EU Contribution

€ 300 739,69

Project information

Grant agreement ID: 263673

Status

Closed project

  • Start date

    1 November 2010

  • End date

    31 July 2016

Funded under:

FP7-IDEAS-ERC

  • Overall budget:

    € 564 000

  • EU contribution

    € 564 000

Hosted by:

FONDATION NATIONALE DES SCIENCES POLITIQUES

France