Reputation and price dynamics in financial markets

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.