Are the Risk Attitudes of Professional Investors Affected by Personal Catastrophic Experiences?

51 Pages Posted: 24 Aug 2017 Last revised: 7 Feb 2018

See all articles by Gennaro Bernile

Gennaro Bernile

University of Miami - Department of Finance

Vineet Bhagwat

George Washington University - Department of Finance

Ambrus Kecskes

York University - Schulich School of Business

Phuong-Anh Nguyen

York University - Schulich School of Business

Date Written: January 23, 2018

Abstract

We adopt a novel empirical approach to show that the risk attitudes of professional investors are affected by their catastrophic experiences – even for catastrophes with no economic impact on these investors or their portfolio firms. We study the portfolio risk of U.S.-based mutual funds that invest outside the U.S. before and after fund managers personally experience severe natural disasters. Using differences-in-differences, we compare managers in disaster versus non-disaster counties matched on prior disaster probability and fund characteristics. We find that monthly fund return volatility decreases by roughly 60 bps in year 1 and the effect disappears by year 3. Systematic risk drives the results. Additional analyses rule out wealth effects (using disasters with no damages) and managerial agency, skill, and catering explanations.

Keywords: Mutual funds, Risk taking, Catastrophes, Natural disasters, Psychology, Behavioral

JEL Classification: D01, D81, G02, G11, G23

Suggested Citation

Bernile, Gennaro and Bhagwat, Vineet and Kecskes, Ambrus and Nguyen, Phuong-Anh, Are the Risk Attitudes of Professional Investors Affected by Personal Catastrophic Experiences? (January 23, 2018). Available at SSRN: https://ssrn.com/abstract=3024983 or http://dx.doi.org/10.2139/ssrn.3024983

Gennaro Bernile

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

Vineet Bhagwat

George Washington University - Department of Finance ( email )

2023 G Street
Washington, DC 20052
United States

Ambrus Kecskes (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Phuong-Anh Nguyen

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

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