Successful private equity managers have funds that are often oversubscribed and provide persistent abnormal returns. Why do not successful managers increase fund size or fees? We argue that managers want to attract high-quality entrepreneurs, while entrepreneurs want to match with high-ability managers. However, observing fund performance does not allow entrepreneurs to distinguish a manager’s ability from the quality of firms in the fund’s portfolio. As a consequence, a fund manager may devote unobserved effort to select firms, and keep fund size small to limit the cost of effort, hoping to manipulate entrepreneurs’ beliefs about his ability.

We explore the impact of weather on trading by individual investors. Over a time span of 94 months, we analyze daily trading records of individual investors. Controlling for various investor- and market-specific factors, we find a two-fold effect of weather. We first observe that investor sentiment, as measured by purchases relative to sales, is significantly higher on days with good weather. In addition, we find that retail investors generally trade more on bad weather days. This result is consistent with the notion that retail investors incur an opportunity cost for spending time trading on days with good weather.