Cost of Bereavement: How Does Parental Loss Affect Mutual Fund Managers?

This study examines whether bereavement, a common life experience, affect the performance and behaviors of mutual fund managers. We find that mutual fund return declines by around 3 percentage points around the parental deaths of fund managers. This underperformance persists for about one year, suggesting a longer-term negative impact of bereavement on fund managers’ cognitive ability. Additionally, the underperformance cannot be explained by alternative explanations such as physical distractions around parental death. Furthermore, bereaved managers’ investing behaviors also change around the parental deaths. Bereaved managers become 1) less likely to take risk, as they reduce tracking errors, shift holdings to larger stocks, and trade less actively; 2) more impatient, as they incur higher transaction costs and close their positions more quickly to realize gains; and 3) more sensitive to losses, as they are more likely to eliminate stocks following large negative returns. Our results identify bereavement as an underexplored life experience that can significantly influence investors’ performance and behaviors.