Trust and Investment Management: The Effects of Manager Trustworthiness on Hedge Fund Investments
46 Pages Posted: 16 Aug 2010 Last revised: 22 Oct 2014
Date Written: October 17, 2014
Abstract
This paper studies the effect of perceived manager trustworthiness on hedge fund investment. Controlling for past-performance, we find that hedge fund managers whose photographs are rated as more trustworthy are able to attract greater fund flows, in the medium performance range, and have a less convex flow-performance relationship compared to the managers rated as less trustworthy. We also find that "trustworthy" managers are more likely to survive given poor past-performance and generate lower risk-adjusted returns when compared to managers who are perceived as less trustworthy. We attribute this phenomenon to over-investment with "trustworthy" managers caused by an investor bias.
Keywords: Hedge Funds, Trust
JEL Classification: G19, G23
Suggested Citation: Suggested Citation
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