We propose a theory of financial intermediaries operating in markets influenced by investor sentiment. In our model …. Banks maximize profits, and there are no conflicts of interest between bank shareholders and creditors. The theory explains …

investment, and allows managers to charge higher fees to investors who trust them more. Money managers compete for investor funds … by setting their fees, but because of trust the fees do not fall to costs. In the model, 1) managers consistently … involve sharing of expected returns between managers and investors, with higher fees in riskier products, 3) managers pander …