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The authors admit that testosterone positively correlates with a host of benefits. These benefits include improved search persistence in male chicks, alpha status in Capuchin monkeys, fearlessness in humans, higher military rank amongst officer cadets at West Point, executive leadership for firm CEOs, and stronger achievement drive in U.S. presidents. However, after their research the duo say they were able to show empirically that superior investment performance is not one of them.

"Using facial width-to-height ratio as a proxy for pubertal testosterone, we find that hedge funds operated by high-testosterone managers deliver substantially lower alphas, Sharpe ratios, and information ratios than do hedge funds operated by low-testosterone managers. In addition, masculine hedge fund managers take on greater operational risk which hurts investors. Funds operated by such managers are more likely to terminate early, report violations on their Form ADVs, and exhibit higher w-scores - a univariate measure of operational risk.

Buying lottery-like stocks and holding on to loser stocks

"Moreover, masculine managers are more likely to engage in suboptimal trading behavior such as purchasing lottery-like stocks and holding on to loser stocks. Interestingly, we find that fund investors are themselves affected by testosterone; high-testosterone fund investors running FoFs underperform low-testosterone fund investors running FoFs. Fund investors appear to invest in their own image. High-testosterone investors subscribe to hedge funds managed by high-testosterone managers while the low-testosterone investors gravitate toward hedge funds managed by low-testosterone managers.

"These results help us understand how masculine fund managers can raise capital despite underperforming their competitors and exhibiting greater operational risk. In the context of the ultra-competitive and male-dominated hedge fund industry, where masculine traits such as aggression, competitiveness, and drive, are encouraged, expected, and even celebrated, our results on the underperformance of high-testosterone fund managers are indeed surprising. They indicate that, contrary to what popular stereotypes of successful investment managers imply, testosterone can be inimical to investment management. Since alpha males do not deliver alpha, investors will do well to go against conventional wisdom and eschew masculine fund managers."

Opalesque Note: You can get to know Melvyn Teo via our video with him: www.opalesque.tv/hedge-fund-videos/Melvyn_Teo/index.php

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