New research from the University of Georgia and Southern Methodist University and published in Management Science [pdf here, but you are not required to read it] shows that the dominant local religion—whether Protestant or Catholic—significantly affects mutual fund behaviors.
Specifically, the findings show that mutual funds headquartered in heavily Catholic areas tend to take more risks and funds in heavily Protestant areas take less risks, said lead author Tao Shu, assistant professor of banking and finance in UGA’s Terry College of Business. The paper was co-authored with Eric Yeung of the Terry College and Johan Sulaeman of Southern Methodist University.
It is not clear why this relationship holds, though the authors mention that surveys show Catholics tolerate more speculative risk than others. Perhaps you have a better explanation.
And which funds perform better?
Yet, despite the risk-preference differences, the end results are about the same. The risk-taking associated with local religious beliefs does not lead to superior fund returns. The lesson for investors, then, is to ask riskier fund managers to play it safe.
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I'd say choose an index fund (or ETF) that follows something basic, like the S&P 500, as your base. Then you can forget about managers and high fees.
ReplyDeleteThat's interesting, I wonder why that's the case. It seems to me that mutual fund managers would worry about making risky investments. Maybe it's the fact that a large mutual fund can afford to take risks but smaller mutual funds have to be more careful. However, I don't see why Protestant areas would have smaller mutual funds.
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