Beta Males Make Hedge Fund Alpha

Does appearance-based masculinity predict hedge fund manager performance? In their January 2018 paper entitled “Do Alpha Males Deliver Alpha? Testosterone and Hedge Funds”, Yan Lu and Melvyn Teo use facial width-to-height ratio (fWHR) as a positively related proxy for testosterone level to investigate the relationship between male hedge fund manager testosterone level and hedge fund performance. They each year in January sort hedge funds into tenths (deciles) based on fund manager fWHR and then measure the performance of these decile portfolios over the following year. Their main performance metric is 7-factor hedge fund alpha, which corrects for seven risks proxied by: (1) S&P 500 Index excess return; (2) difference between Russell 2000 Index and S&P 500 Index returns; (3) 10-year U.S. Treasury note (T-note) yield, adjusted for duration, minus 3-month U.S. Treasury bill yield; (4) change in spread between Moody’s BAA bond and T-note, adjusted for duration; and, (5-7) excess returns on straddle options portfolios for currencies, commodities and bonds constructed to replicate trend-following strategies in these asset classes. They collect 3,228 hedge fund manager photographs via Google image searches, choosing the best for each manager based on resolution, degree of forward facing and neutrality of expression. They use these photographs to measure fWHR as the distance between the two zygions (width) relative to the distance between the upper lip and the midpoint of the inner ends of the eyebrows (height). Using these fWHRs, monthly net-of-fee returns and assets under management of 3,868 associated live and dead hedge funds, and monthly risk factor values during January 1994 through December 2015, they find that:

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