Local Religious Beliefs and Hedge Fund Risk-Taking Behaviors

51 Pages Posted: 5 Sep 2015 Last revised: 6 Jul 2016

See all articles by Lei Gao

Lei Gao

Iowa State University

Ying Wang

State University of New York at Albany - School of Business

Jing Zhao

Portland State University - The School of Business

Date Written: June 11, 2016

Abstract

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

Gao, Lei and Wang, Ying and Zhao, Jing, Local Religious Beliefs and Hedge Fund Risk-Taking Behaviors (June 11, 2016). Available at SSRN: https://ssrn.com/abstract=2656290 or http://dx.doi.org/10.2139/ssrn.2656290

Lei Gao

Iowa State University ( email )

Ames, IA 50011-2063
United States

Ying Wang

State University of New York at Albany - School of Business ( email )

1400 Washington Ave.
Albany, NY 12222
United States

Jing Zhao (Contact Author)

Portland State University - The School of Business ( email )

631 SW Harrison St.
Portland, OR 97201
United States

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