Limited Attention, Marital Events, and Hedge Funds

49 Pages Posted: 18 Feb 2015 Last revised: 20 Mar 2016

See all articles by Yan Lu

Yan Lu

University of Central Florida - College of Business Administration

Sugata Ray

University of Alabama - Department of Economics, Finance and Legal Studies

Melvyn Teo

Singapore Management University - Lee Kong Chian School of Business

Date Written: March 14, 2016

Abstract

We explore the impact of limited attention by analyzing the performance of hedge fund managers who are distracted by marital events. We find that marriages and divorces are associated with significantly lower fund alpha, during the six–month period surrounding and the two-year period after the event. Busy managers who manage multiple funds and who are not part of a team are more affected by marital transitions. Inattentive managers place fewer active bets relative to their style peers, load more on index stocks, exhibit higher R–squareds with respect to systematic factors, and are more prone to the disposition effect.

Keywords: Hedge Funds, Limited Attention, Behavioral Finance, Disposition Effect, Marriage, Divorce

JEL Classification: G12; G23; G14

Suggested Citation

Lu, Yan and Ray, Sugata and Teo, Melvyn, Limited Attention, Marital Events, and Hedge Funds (March 14, 2016). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2565749 or http://dx.doi.org/10.2139/ssrn.2565749

Yan Lu

University of Central Florida - College of Business Administration ( email )

PO Box 161400
Orlando, FL 32816
United States

Sugata Ray

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

Melvyn Teo (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
Singapore, 178899
Singapore
+65 6828 0735 (Phone)
+65 6822 0777 (Fax)

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