Sensation Seeking And Hedge Funds

Abstract

We show that, motivated by sensation seeking, hedge fund managers who own powerful sports cars take on more investment risk but do not deliver higher returns, resulting in lower Sharpe ratios, information ratios, and alphas. Moreover, sensation-seeking managers trade more frequently, actively, and unconventionally, and prefer lottery-like stocks. We show further that some investors are themselves susceptible to sensation seeking and that sensation-seeking investors fuel the demand for sensation-seeking managers. While investors perceive sensation seekers to be less competent, they do not fully appreciate the superior investment skills of sensation-avoiding fund managers.

Publication Date

12-1-2018

Publication Title

Journal of Finance

Volume

73

Issue

6

Number of Pages

2871-2914

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1111/jofi.12723

Socpus ID

85056316506 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/85056316506

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