Tue, May 17, 2022
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Paper: High-testosterone hedge fund managers significantly underperform low-testosterone guys

Tuesday, January 23, 2018
Opalesque Industry Update - Yan Lu from the University of Central Florida-Department of Finance and Melvyn Teo, Singapore Management University - Lee Kong Chian School of Business, published a paper using facial width-to-height ratio (fWHR) as a proxy for pubertal testosterone and showing that high-testosterone hedge fund managers significantly underperform low-testosterone hedge fund managers after adjusting for risk.

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

Article source - Opalesque is not responsible for the content of external internet sites

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Opalesque Exclusive: Long/short equity hedge fund with bear market experience has a winning quarter[more]

    B. G., Opalesque Geneva: Experience during a Russian bear market lasting five years enabled Christian Putz to identify certain investment patterns in the market which he now applies to his current investment strategy. London-based ARR Inv

  2. Opalesque Exclusive: Global equity manager focuses on symbiotic value chains[more]

    B. G., Opalesque Geneva: A global equity manager has made a point of focusing on the phenomenon of shrinking supply chains and avoiding zero-sum business models. London-based Tollymore Investment Partners is a private partnersh

  3. Satori Capital intros energy transition fund, a long/short equity strategy[more]

    Laxman Pai, Opalesque Asia: Dallas-based alternatives manager founded on the principles of conscious capitalism, Satori Capital has launched Satori Environmental, a long/short equity strategy that primarily invests in securities impacted by the global energy sector's shift from fossil-based s

  4. The Big Picture: With the war, E, S, and G have collectively moved back to the fore[more]

    B. G., Opalesque Geneva: In this interview, Dr. Patrick Welton, founder and CIO of Welton Investment Partners, offers his observations on the major macro themes expected to affect the comm

  5. Other Voices: The selloff is overdone[more]

    Authored by Heeten Doshi, founder of Doshi Capital Management. Anyone who is still bearish and calling for more downside is foolish. The selloff is overdone. To point to further declines from here is poor risk management. With the Nasdaq 100 down 22% and S&P 500 down 13% for the year