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Sensation-Seeking Hedge Fund Managers

57 Pages Posted: 10 Dec 2016 Last revised: 2 Nov 2017

Stephen Brown

New York University (NYU) - Leonard N. Stern School of Business

Yan Lu

University of Central Florida-Department of Finance

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: December 8, 2016

Abstract

Using a novel data set 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 and information 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

Brown, Stephen and Lu, Yan and Ray, Sugata and Teo, Melvyn, Sensation-Seeking Hedge Fund Managers (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

Stephen Brown

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
New York, NY NY 10012
United States

Yan Lu

University of Central Florida-Department of Finance ( 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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