Testosterone and Hedge Funds: Do Alpha Males Deliver Alpha? They don't.

Lu, Yan and Teo, Melvyn, Do Alpha Males Deliver Alpha? Testosterone and Hedge Funds (January 12, 2018). Available at SSRN: https://ssrn.com/abstract=3100645

Abstract: Using facial width-to-height ratio (fWHR) as a proxy for testosterone, we show that high-testosterone hedge fund managers significantly underperform low-testosterone hedge fund managers after adjusting for risk. Moreover, high-testosterone managers are more likely to terminate their funds, disclose violations on their Form ADVs, and display greater operational risk. We trace the underperformance to high-testosterone managers' greater preference for lottery-like stocks and reluctance to sell loser stocks. Our results are robust to adjustments for sample selection, marital status, sensation seeking, and manager age, and suggest that investors should eschew masculine hedge fund managers.

Keywords: hedge funds, alpha, testosterone, facial width-to-height, masculine, disposition effect, operational risk

JEL Classification: G02, G23