Being Single, Marriage, Divorce and Women Beat Men in Investing
Interesting investment research from around the world
In this week’s newsletter, we thought we would look at some interesting research from that we have come across.
Sexual Harassment
In a post at ‘Klement on Investing’, the author provided great insight on Canadian research of how companies with lot of sexual harassment complaints or accused of cover ups tend to have much lower profits than other firms at an average.
Intuitively it makes sense right? a company where there is something systemically wrong, it would affect the working environment leading to lower productivity and work satisfaction.
Blue line denotes the average company and red line are the companies affected with sexual harassment issues
Source: Klement on Investing
Read more here -
‘Klement on Investing’ post - here
and the research paper- How Much Does Workplace Sexual Harassment Hurt Firm Value?
Single investment managers
Investment mangers who have never been married and single tend to take more risks than married people. This is believed to be true even in general but it applies to investment too.
In a paper titled ‘ Limited attention, marital events and hedge funds’ by researchers at University of Florida, found that investment performance by single investment managers tend to be 28% more volatile than an investment manager who is married multiple times.
The belief is that managers or humans in general take more risks to improve their prospects for marriage
Marriage honeymoon period
Investment managers who are about to or just married tend to take fewer risks and underperform significantly as much as 14.3% compared to the median of their peers.
The same study found that managers who are in the honeymoon phase of their marriage place fewer trades and take less risks, especially for active managers that traded frequently, there is significant deviation from their style bias.
Investment managers tend to herd in terms of their investment style, load up more on index stocks and this might be due to recrudesced attention span. Investment managers also lose discipline and become more prone to disposition affect and sell stocks that have gone up and hold stocks that have declined without a rational basis.
Divorce
This is something that seems obvious, if someone is going going through an emotionally tough period, his work would definitely get affected.
The same research showed It’s no difference in investing where investment managers going through a divorce tend to under-perform their peers and generate significantly negative alpha to the extent of 11.7% for as much as up-to 2 years.
Other Events:
Humans go through other emotionally charged events such as death of a loved one, birth of a child, other family troubles or medical conditions and all of this can impact investment performance.
High Bandwidth and Low Bandwidth
This study by these University of Florida economists also founds that this anomaly is more common with ‘low bandwidth’ investment mangers that manage multiple funds. ’High bandwidth’ funds that are managed by a team are far less impacted by events that affect only team member.
Here is the entire research ‘ Limited Attention, Marital Events and Hedge Funds’
Women are better traders
In a 2011 research titled ‘Boys will be boys’, the authors of that research found that men tend to be more overconfident of their investing skills and tend to trade more frequently than women, leading to more trading fees but not outperformance. The high turnover leads to higher costs that dampens performance.
Apart from over-trading, there will be also a case for overconfidence that clouds judgement leading to wrong choices by itself.
Source: Boys will be Boys
India
While the rest of the investing world has moved significantly towards passive and systematic factor investing, though a significant chunk is still managed by active managers.
In India it’s far more skewed towards active management at the institutional, boutique and individual levels.
This research is very relevant whether you are picking a manager or investing by yourself and making the right decision.
Enjoy the chit-chat: