Trust and Investment Management: The Effects of Manager Trustworthiness on Hedge Fund Investments
Rutgers Business School
October 17, 2014
AFA 2012 Chicago Meetings Paper
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.
Number of Pages in PDF File: 46
Keywords: Hedge Funds, Trust
JEL Classification: G19, G23Accepted Paper Series
Date posted: August 16, 2010 ; Last revised: October 22, 2014
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