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Trust and Investment Management: The Effects of Manager Trustworthiness on Hedge Fund Investments

46 Pages Posted: 16 Aug 2010 Last revised: 22 Oct 2014

Ankur Pareek

Rutgers University

Roy Zuckerman

Rutgers Business School

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

Pareek, Ankur and Zuckerman, Roy, Trust and Investment Management: The Effects of Manager Trustworthiness on Hedge Fund Investments (October 17, 2014). AFA 2012 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1659189

Ankur Pareek

Rutgers University ( email )

1 Washington Park
Newark, NJ 07102
United States
973-353-1646 (Phone)

Roy Zuckerman (Contact Author)

Rutgers Business School ( email )

1 Washington Park
Newark, NJ 07102
United States
9733531536 (Phone)

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