Summary of teh Article: Birth Order and Mutual Fund Manager Risk-Taking
This article details a study investigating the correlation between a mutual fund manager’s birth order and their investment behavior. Researchers found a strong link between being a later-born sibling and increased risk-taking in fund management.
Key Findings:
Increased Risk: Later-born managers took on more risk, increasing total fund risk by 0.37% and active risk by 0.65% annually compared to firstborn managers.
“Lottery Stock” Preference: They were more likely to invest in high-volatility, low-price stocks (like biotech startups and meme stocks) – a “gambling-style” approach.
Regulatory Issues: Later-born managers had a higher incidence of regulatory and civil violations (late disclosures, misreporting, customer disputes).
Underperformance: Despite the increased risk, later-born managers consistently underperformed on key metrics like the Sharpe ratio, information ratio, and peer-adjusted alpha. Roughly half of this underperformance was attributed to their preference for lottery stocks.
family Dynamics Matter: The effect was stronger* in families with fewer resources and smaller age gaps between siblings,suggesting increased competition for attention and resources drives the sensation-seeking behavior.
Why it Matters:
The study highlights that personality traits developed in childhood, specifically due to sibling rivalry, can considerably impact investment decisions. This is important because fund managers are handling investors’ money, and excessive risk-taking can negatively affect their financial well-being.
methodology:
The researchers analyzed data from nearly 1,800 mutual funds and their managers, combining performance statistics with detailed family background information gathered from obituaries, census data, and databases like Ancestry.com.
In essence, the article suggests that understanding a fund manager’s background – even their birth order – could be a valuable, albeit unconventional, factor to consider when making investment choices.
