UGA study finds local religions affect mutual funds

ATHENS, Ga. — New research from the University of Georgia (UGA) and Southern Methodist University and published in Management Science shows that the dominant local religion — whether Protestant or Catholic — significantly affects mutual fund behaviors.

Specifically the findings show that mutual funds headquartered in heavily Catholic areas tend to take more risks and funds in heavily Protestant areas take less risks, said lead author Tao Shu, assistant professor of banking and finance in the UGA Terry College of Business. The paper was co-authored with Eric Yeung of the Terry College and Johan Sulaeman of Southern Methodist University.

“Finding evidence that a local culture’s religious beliefs affect mutual funds’ risk-taking decisions is surprising because this is a very competitive industry,” Shu said. “One would expect that profit chasing would eliminate all the impact of culture or anything else. But surprisingly, a local culture’s religious beliefs still impact risk-taking decisions.”

Because mutual funds make up about half of all institutional investments in the United States, the findings have widespread implications for how investors manage their money, he added.

According to Shu, it has been widely documented by surveys that while Catholics are more tolerant to speculative risk than the general population, Protestants are less tolerant to speculative risk than the general population.