From Alpha Architect
This research examines whether or not the gender of institutional investors (fund managers) affects their reaction to changes in market sentiment. The literature on gender differences for retail investors differs from that of institutional investors in specific ways. In the retail and institutional worlds, women invest more conservatively and are generally more risk-averse than men. Those differences in risk aversion do not affect performance. However, male investors in the retail world trade more frequently than females and this behavior does detract from performance. For male fund managers, the difference in observed trading behavior does not seem to matter.
Given that the evidence is mixed, the focus of this research is specifically geared to the differences between male and female fund managers. In the retail arena, gender reactions may differ especially where irrationalities may govern expectations about risk, cashflows, and ultimately market prices. If good sentiment leads to overpricing of securities and poor sentiment leads to underpricing of securities, rational fund managers will view irrational sentiment as an opportunity to be exploited. Therefore, as sentiment changes, fund managers will trade in reaction. It may be that those same forces are mitigated and even exploited by institutional fund managers.
- YES. Compared to male managers, females are less influenced by sentiment. They trade less, are less aggressive, less active, and less risky (lower total risk and unsystematic risk) in reaction to changes in sentiment. Levels of unsystematic risk were especially lower when sentiment was negative.
- NO. There were no significant differences in risk/return measures between male and female fund managers. See Table 1 Panel C, for stats on total return, Sharpe ratio, and various measures of alpha obtained from risk models……
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