Study: People Like Hedge Funds That Sound Tough

By:
Chris Gaetano
Published Date:
Mar 29, 2017
NameTag

A recent study has found that investors put more money into a hedge fund if it has a tough sounding name, like Manchester Alpha Fund or Marathon Macro Strategic Allocation, instead of a more prosaic, or even gentle sounding, name like Hare Investment Fund or Mullaney Investment, according to CNBC. Researchers from the University of Buffalo and the University of Oulu in Findland measured the degree to which hedge fund names have what they called "gravitas." This was done through running the Harvard IV Psychological dictionary (minus words common in the finance world) through semantic analysis to determine what words suggest gravitas or, as the paper says, "a combination of seriousness, respect, know-how in politics, exercise of power as well as globalism." 

The research found that funds with at least one word associated with gravitas in their name have $227,120 more a year in flows. This is not only regardless of the fund's actual performance, but actually counter to it: the researchers discovered that hedge funds with names associated with gravitas have annualized alphas up to 0.97 percent lower than those with negatively associated names. At least at first: the researchers also discovered that funds with a powerful sounding name with consistently disappointing performance are eventually punished severely by investors. Further they found that the effect isn't as powerful for large and established funds, or for funds with high minimum investment requirements. 

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