Why ‘Alpha Males’ Make Bad Hedge Fund Managers

More testosterone results in higher turnover, more aggressive stock picks, and a reluctance to admit to a bad investment, according to new research.



Having high levels of testosterone could result in worse performance — in your hedge fund portfolio, that is.

High-testosterone hedge fund managers “significantly underperform” low-testosterone peers, according to research from the University of Central Florida and Singapore Management University. These “alpha males” post lower returns because they trade more frequently, tend toward high-risk, high-potential stock picks, and are reluctant to sell losing stocks, argued authors Yan Lu and Melvyn Teo.

“Testosterone can shape trading behavior and lead to sub-optimal decisions,” they wrote.

For the study, the pair examined the investment performance of 3,228 male fund managers from 1,901 investment firms operating hedge funds between January 1994 and December 2015. To estimate each manager’s testosterone levels, Lu and Teo measured their facial width-to-height ratio — a representation of pubertal testosterone exposure that has been linked to high testosterone levels in adults.

The researchers found that managers with wider faces underperformed low-testosterone counterparts by 5.8 percent per year after adjusting for risk. These results were not explained by differences in illiquidity, fund age, or fund size.

Moreover, they discovered that higher levels of testosterone resulted in higher levels of operational risk, with these managers more likely to disclose regulatory actions and terminate their funds.


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Still, Lu and Teo said at least one group of investors was more attracted to these lower-alpha, higher-risk hedge funds: investors with higher levels of testosterone.

“The aggressive trading style of high-testosterone hedge funds may appeal to high-testosterone investors as it mirrors their own,” they wrote.

In the study, fund-of-fund managers with higher facial width-to-height ratios chose more high-testosterone managers and underperformed thinner-faced peers by 5.03 percent per year.

“In the context of the ultra-competitive and male-dominated hedge fund industry, where masculine traits such as aggression, competitiveness, and drive, are encouraged, expected, and even celebrated, our results on the underperformance of high-testosterone fund managers are indeed surprising,” the authors concluded. “Investors will do well to go against conventional wisdom and eschew masculine fund managers.”