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New research reveals how childhood sibling dynamics may shape billion-dollar financial decisions.<\/p>\n
Many people know nothing about the mutual fund manager whose investment decisions affect the performance of their IRA and 401(k) accounts.<\/p>\n
But the new research suggests it\u2019s well worth one\u2019s while to know who\u2019s minding your funds\u2014specifically their birth order\u2014due to implications for how your fund performs.<\/p>\n
Finance professor Vikas Agarwal, of Georgia State University and his coauthors at the University of St. Gallen share their findings in a new paper in the Journal of Finance<\/a>, including that a mutual fund manager\u2019s birth order could be a strong predictor of their investment behavior.<\/p>\n The researchers found that managers who were born later among siblings take more financial<\/a> and regulatory risks. And although one may expect bigger risks to come with bigger rewards, the data shows otherwise: later-born managers tend to underperform their firstborn peers on nearly every risk-adjusted performance metric.<\/p>\n Agarwal and his coauthors analyzed decades of data for more than 1,400 US-based mutual fund managers who manage nearly 1,800 mutual funds. The researchers combined performance statistics with detailed family background information, including birth rank, sibling age gaps, and even parental income and education, sourced from obituaries, public records like US Census data, and databases like Ancestry.com.<\/p>\n This is one of the first studies to use these types of data to quantify how birth order affects mutual fund management.<\/p>\n \u201cWe did not use just a standard database\u2014we had to analyze many different data sources to get the level of family details on each manager, because what we really wanted to understand is the root cause of this risk-taking behavior by later-born siblings,\u201d says Agarwal.<\/p>\n \u201cWhat we found is that it boils down to sibling rivalry, as later-born children may develop sensation-seeking traits as a way to stand out in the family.\u201d<\/p>\n The study\u2019s results are both striking and statistically robust. A manager\u2019s birth order was strongly correlated with several key indicators of risk-taking. For every step down in birth order (from firstborn to second-born, for example), total fund risk increased by 0.37 percentage points annually. Active risk, that is how much a fund\u2019s returns deviate from its benchmark, rose by 0.65 percentage points.<\/p>\n Later-born managers were also more likely to invest in so-called lottery stocks\u2014companies with low prices, high volatility, and a small chance of outsized returns\u2014such as biotech startups or meme stocks. This gambling-style behavior may resonate with sensation-seeking personality types but is often out of sync with investor preferences for stable, long-term growth.<\/p>\n Perhaps most notably, later-born managers were more frequently cited for regulatory or civil violations, according to data from FINRA\u2019s BrokerCheck records, including infractions like late disclosures, misreporting, and customer disputes.<\/p>\n