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Cognitive Skills and Economic Preferences in the Fund Industry

Author

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  • Farago, Adam
  • Holmén, Martin
  • Holzmeister, Felix

    (University of Innsbruck)

  • Kirchler, Michael
  • Razen, Michael

Abstract

By running a battery of incentivized and non-incentivized experiments with fund managers from four countries in the European Union, we investigate the impact of fund managers' cognitive skills and economic preferences on the dynamics of the mutual funds they manage. First, we find that fund managers' risk tolerance positively correlates with fund risk when accounting for fund benchmark, fund category, and other controls. Second, we show that fund managers' ambiguity tolerance positively correlates with the funds' tracking error from the benchmark. Finally, we report that cognitive skills do not explain fund performance in terms of excess returns. However, we do find that fund managers with high cognitive reflection abilities generate these returns at lower risk.

Suggested Citation

  • Farago, Adam & Holmén, Martin & Holzmeister, Felix & Kirchler, Michael & Razen, Michael, 2019. "Cognitive Skills and Economic Preferences in the Fund Industry," OSF Preprints 964ba_v1, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:964ba_v1
    DOI: 10.31219/osf.io/964ba_v1
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