Are the risk attitudes of professional investors affected by personal catastrophic experiences?

Gennaro Bernile, Vineet Bhagwat, Ambrus Kecskés, Phuong Anh Nguyen

Research output: Contribution to journalArticlepeer-review

Abstract

We adopt a novel empirical approach to show that the risk attitudes of professional investors are affected by their catastrophic experiences—even for catastrophes without any meaningful economic impact on these investors or their portfolio firms. We study the portfolio risk of U.S.-based mutual funds that invest outside the United States before and after fund managers personally experience severe natural disasters. Using a difference-in-differences approach, we compare managers in disaster versus nondisaster counties matched on prior disaster probability and fund characteristics. We find that monthly fund return volatility decreases by roughly 60 basis points in year +1 and the effect disappears by year +3. Systematic risk drives the results. Additional analyses do not support wealth effects (using disasters with no property damage) or managerial agency, skill, and catering explanations.

Original languageEnglish (US)
JournalFinancial Management
DOIs
StateAccepted/In press - 2020
Externally publishedYes

Keywords

  • behavioral finance
  • catastrophes
  • mutual funds
  • natural disasters
  • psychology
  • risk taking

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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