Local Religious Beliefs and Hedge Fund Risk-Taking Behaviors
51 Pages Posted: 5 Sep 2015 Last revised: 6 Jul 2016
Date Written: June 11, 2016
Using hedge fund returns and county-level religiosity data during 1996-2013, we examine the effects of local religious beliefs on hedge fund risk-taking behaviors. We find that local religiosity is significantly negatively related to both total and idiosyncratic volatilities of hedge funds, even after controlling for endogeneity using managers’ college-location religiosity. Further analyses show that funds located in counties with higher religiosity ratios tend to hold less risky stocks and diversify their stock portfolios across industries, thus contributing to lower risk-taking of these funds. Overall, our evidence suggests that local religiosity may motivate hedge fund managers to reduce excessive idiosyncratic risk.
Keywords: Hedge fund, Risk-taking behaviors, Religion, Idiosyncratic risk, Hedge fund holdings
JEL Classification: G11, G23
Suggested Citation: Suggested Citation