44 Pages Posted: 10 Dec 2016 Last revised: 6 Jul 2017
Date Written: December 8, 2016
Using a novel dataset of hedge fund manager automobile purchases, we show that, motivated by sensation seeking, hedge fund managers often take risk for personal and non-pecuniary reasons. In line with the sensation seeking view, managers who own powerful sports cars take on more investment risk but do not deliver higher returns, resulting in lower Sharpe ratios. Moreover, funds managed by performance car owners exhibit higher operational risk and are more likely to fail. Performance car owners demonstrate other attributes associated with sensation seeking, such as a preference for lottery-like stocks, unconventional strategies, and active trading.
Keywords: Sensation seeking, Hedge funds, Risk, Operational risk
JEL Classification: G11, G12, G14, G23
Suggested Citation: Suggested Citation
Brown, Stephen and Lu, Yan and Ray, Sugata and Teo, Melvyn, Sensation-Seeking Hedge Funds (December 8, 2016). 12th Annual Mid-Atlantic Research Conference in Finance (MARC). Available at SSRN: https://ssrn.com/abstract=2882983 or http://dx.doi.org/10.2139/ssrn.2882983