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Cognitive Skills and Economic Preferences in the Fund Industry

Adam Farago (), Martin Holmen, Felix Holzmeister (), Michael Kirchler () and Michael Razen ()

Working Papers from Faculty of Economics and Statistics, University of Innsbruck

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.

Keywords: cognitive skills; economic preferences; fund managers; fund performance; experimental finance (search for similar items in EconPapers)
JEL-codes: C91 D91 G11 G41 J24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp
Date: 2019
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Handle: RePEc:inn:wpaper:2019-16