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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 experiments with fund managers, we investigate the impact of cognitive skills and economic preferences on their professional decisions. 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 compose funds 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)
Pages: 44 pages
Date: 2019
New Economics Papers: this item is included in nep-exp
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