Publication Type

Journal Article

Version

submittedVersion

Publication Date

12-2018

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.

Keywords

Sensation seeking, Hedge funds, Sports cars, Alpha, Risk

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Publication

Journal of Finance

Volume

73

First Page

2871

Last Page

2914

ISSN

0022-1082

Identifier

10.1111/jofi.12723

Publisher

Wiley: No OnlineOpen

Additional URL

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

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