Study links mutual fund decisions with religion

By Laura Koran

(CNN) – Faith plays a major role in many Americans' lives, affecting their outlook on morality, politics and even – according to a new study – investing.
 
The study, conducted at the University of Georgia and Southern Methodist University, found that the predominant religion in a community affects the decision-making process of mutual fund managers in that community, specifically when it comes to risk.
 
Mutual funds in counties with larger Catholic communities tend to embrace risk more than those in majority-Protestant counties, the study found. Earlier studies have found that Catholics are generally more prone to take speculative risks than the average population, while Protestants are more risk-averse than the average population.
 
The findings, which will be published next month in the academic journal Management Science, could help provoke a re-evaluation of how investing works, its authors said.

"One would expect that with very, very severe competition within the mutual fund industry, culture should play no role in mutual fund decisions because fund managers ... should adopt value-maximizing strategies," said Tao Shu, an assistant professor of finance at the University of Georgia and one of the study's authors.
 
"Surprisingly," Shu continued, "we found that despite the very intense competition within the mutual fund industry, mutual funds are still impacted by local culture."
 
Specifically, the study found that mutual funds located in predominantly Catholic areas are associated with increasing fund volatility, a measure of risk taking, by about 6%, compared to those in low-Catholic areas. Those in predominately Protestant counties have a 14% lower fund volatility compared with those in low-Protestant areas.

The study looked at 1,621 growth and aggressive growth mutual funds.
 
Shu conducted the study with University of Georgia colleague Eric Yeung and Johan Sulaeman of Southern Methodist University....