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Cognitive Skills and Economic Preferences in the Fund Industry

Author

Listed:
  • Adam Farago
  • Martin Holmén
  • Felix Holzmeister
  • Michael Kirchler
  • Michael Razen

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.

Suggested Citation

  • Adam Farago & Martin Holmén & Felix Holzmeister & Michael Kirchler & Michael Razen, 2019. "Cognitive Skills and Economic Preferences in the Fund Industry," Working Papers 2019-16, Faculty of Economics and Statistics, University of Innsbruck.
  • Handle: RePEc:inn:wpaper:2019-16
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    More about this item

    Keywords

    cognitive skills; economic preferences; fund managers; fund performance; experimental finance;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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