Massimo joined UTS in October 2007 after completing his PhD in Economics at Bocconi University, Milan. His research interests are mainly in the area of economics of information and applied game theory. His most recent research examines the role of reputation and career concerns as implicit incentives in economic interactions. He is presently affiliated to the Paul Woolley Centre for the Study of Capital Market Dysfunctionality and member of the American Economic Association, the European Economic Association and the Economic Society of Australia.
Massimo joined the School in October 2007. Click here to view his personal web page.
Pavesi, F & Scotti, M 2014, 'Experts, conflicts of interest and reputation for ability', International Journal of Economic Theory, vol. 10, no. 2, pp. 219-233.View/Download from: UTS OPUS or Publisher's site
We analyze a model of cheap talk in which an expert who faces a conflict of interest with a decision maker is concerned about establishing a reputation for having accurate information. In this environment, an increase in reputation above a certain threshold always makes truthful revelation more difficult to achieve, since experts with greater reputation can more easily sway the beliefs of decision makers in a desired direction. Thus, higher levels of reputation exacerbate the incentives of biased experts to misreport their private information. Decision makers may therefore be better off consulting less reputable experts when conflicts are more pronounced.
Bird, R, Gray, J & Scotti, M 2013, 'Why do investors favor active Management ... to the extent they do?', Rotman International Journal of Pension Management, vol. 6, no. 2, pp. 6-17.View/Download from: UTS OPUS or Publisher's site
Half a century of analysis has yet to fully answer why investors place such a large proportion of their funds with active equity managers, given the discouraging evidence on the latter's ability to add net value. From the voluminous literature on manager performance we conclude that there is some, but limited, evidence that can rationally justify hiring active managers. The weakness of the evidence leads us to ask, Why do investors favor active equity management to the extent they do? To help answer this question, we conducted two online surveys, one of Chief Investment Officers of predominantly large Australian superannuation (i.e., pension) funds and another of asset consultants. The results confirmed that the industry is captive to a pervasive prior towards active management. The prior is reinforced by a competitive environment and supported by a complex mix of behavioral, agency, organizational, and cultural factors
The paper proposes a model of delegated portfolio management in which career concerns lead to unprofitable trade by uninformed managers (i.e. churning). We find that churning does not necessarily reduce the return that a representative investor expects ex-ante from delegating trade to a manager. As uninformed managers churn, the level of noise in the market increases and informed managers generate higher returns than in the absence of churning. When fundamental volatility is relatively low, uninformed managers trade less aggressively and the high returns expected from informed managers more than compensate the losses expected from uninformed managers. While career concerns generally lead to an increase in trade volume, the pattern of churning that we highlight also implies that both the volume of uninformed trade and the aggregate volume of trade are positively related to the level of asset riskiness.
This paper analyzes a version of the static Kyles (1985) model of insider trading where both the distribution of the liquidation value of the risky asset and the distribution of the order flow of noise traders are discrete. We derive necessary and sufficient conditions for the existence of perfect Bayesian equilibria where the insiders strategy is increasing in the value of the asset, and show that such equilibria can be constructed if and only if the variance of the asset is not too extreme. The results in this paper are relevant in contexts where a discrete version of the static Kyles (1985) model might be a convenient modelling choice.
Bonini, S., Pavesi, F. & Scotti, M. 2011, 'Financial analysts and collective reputation: Theory and evidence', Financial Management Association Annual Meeting, Denver, USA.
Scotti, M 2011, 'Delegated portfolio management with career concerns', International Finance and Banking Society Conference, Rome, Italy.
Scotti, M. 2011, 'Delegated portfolio management with career concerns', Annual Conference of the Multinational Finance Society, Rome, Italy.
Scotti, M. 2011, 'Delegated portfolio management with career concerns', International Finance and Banking Society Conference 2011, Rome, Italy.
Casavecchia, L. & Scotti, M. 2010, 'Dynamic setting of distribution fees in the US mutual fund industry', Annual Conference of the Multinational Finance Society, Barcelona, Spain.
Scotti, M. 2010, 'Experts, conflicts of interest and the controversial role of reputation', 39th Australian Conference of Economists, Sydney, Australia.
Scotti, M. 2010, 'Experts, conflicts of interest and the controversial role of reputation', 25th Annual Congress of the European Economic Association, Glasgow, Scotland.
Scotti, M. 2010, 'Asset delegation, career concerns and trade volume', FMA Annual Meeting, New York, USA.
Scotti, M. 2010, 'Asset delegation, career concerns and trade volume', Financial Management Association 2010 Meetings, Financial Management Association Annual Meeting, Financial Management Association, New York, USA, pp. 1-54.View/Download from: UTS OPUS
The paper analyzes the e¤ects of career concerns of portfolio managers on their incentives to trade in a order-driven market. We show that career concerns lead portfolio managers to trade even whithout valuable informa- tion, and hence even when they expect a negative return from trading. We then analyze how managers reacts to changes in asset volatility and .nd that uninformed managers facing career concerns trade larger quantities as asset riskiness increases. As a testable empirical implication, the model predicts that increasing levels of institutional ownership in .nancial markets lead to higher trading volumes that are positively correlated with asset volatility.
Scotti, M. 2009, 'Dynamic setting of distribution fees in the US mutual fund industry', EFMA2009, Milan, Italy.
Scotti, M. 2009, 'Mutual funds, career concerns and trade volume', Australian Conference of Economists 2009, Adelaide, Australia.
Casavecchia, L. & Scotti, M. 2009, 'Dynamic setting of distribution fees in the US mutual fund industry', Financial Management Association Annual Meeting, Reno, Nevada, USA.
Casavecchia, L. & Scotti, M. 2008, 'Strategic pricing of mutual funds and the flow-performance relation', Paul Woolley Centre for Capital Market Dysfunctionality Conference 2008, Sydney, Australia.
Scotti, M. 2007, 'Mutual funds, career concerns and trade volume', Investing Strategies and Financial Market Inefficiency Conference, Sydney, Australia.
Scotti, M. 2007, 'Mutual funds, career concerns and trade volume', EEA/ESEM Congress, Budapest, Hungary.