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
Citation
BROWN, Stephen; LU, Yan; RAY, Sugata; and TEO, Song Wee Melvyn.
Sensation seeking and hedge funds. (2018). Journal of Finance. 73, 2871-2914.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/5965
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1111/jofi.12723