Born to take risk? The surprising link between birth order and risk-taking behaviour in fund managers
- Robin Powell
- Aug 27
- 6 min read
What if your fund manager’s childhood — even the order they were born into their family – influences the risks they take with your money? New research suggests it does. And the findings are another reminder of why evidence-based investing beats betting on active managers. The study highlights the surprising link between birth order and risk-taking, a trait not confined to professional investors but also found in ordinary savers. For anyone relying on active funds, it’s another warning flag.
Families know the stereotypes: the firstborn is dutiful, cautious and achievement-focused; the youngest more adventurous, creative, and prone to risk. These patterns aren’t just anecdotes. Psychologists have been studying them for decades. Now financial economists have shown how sibling dynamics echo through the decisions of fund managers who control billions of pounds of other people’s money.
What the new research set out to do
The authors of a new paper, Birth Order and Fund Managers' Trading Behavior, asked a simple but powerful question: do early family dynamics affect the professional decisions of those entrusted with investors’ capital?
Their starting point was an established behavioural finance insight: childhood environment shapes adult risk-taking. But they wanted to test this in the rarefied world of mutual fund managers, where billions of dollars and the retirement savings of millions are at stake. To do that, they needed to identify not just who the managers were, but also the environments they grew up in.
How they did it
The team employed an ingenious method. They built a database of managers’ family structures using obituaries and genealogical records. This allowed them to identify birth order, parental circumstances, and in some cases traumatic events such as early parental death. They then matched this data to detailed mutual fund records covering portfolio holdings, risk exposures, performance, and regulatory histories.
In effect, they merged family history with financial history, something rarely attempted in economics.
What they found
The results are striking:
Later-borns take more risk. On average, each step down the birth order raises portfolio risk by around 0.37 percentage points.
Performance suffers. Higher risk did not mean higher returns. Risk-adjusted measures such as Sharpe ratios and information ratios were consistently worse for later-borns compared to firstborn peers.
Lottery stock preference. Later-born managers showed a stronger taste for volatile, lottery-like stocks – speculative bets with small chances of large payoffs. The study estimated that these preferences explained roughly half of their underperformance.
Regulatory concerns. Later-born managers were also more likely to appear in regulatory records, linked to disclosure issues and compliance failures.
The authors concluded: “Overall, we find that firstborn CEOs, CEOs from families with higher socioeconomic resources and those with less childhood trauma prefer safer investment and leverage policies…”.This underlines that early family dynamics carry over into risk-taking even in professional contexts where investors might assume rationality prevails.
Why later-borns lean into risk
The mechanism is familiar from everyday life: later-borns tend to be more sensation-seeking. In portfolio terms, that means a stronger preference for “lottery stocks” – low-priced, high-volatility companies with a small chance of massive upside. The researchers estimate that these lottery bets account for roughly half of the later-born underperformance.
Birth order and risk-taking among ordinary investors
It’s not only professionals. Studies in behavioural finance show that birth order and risk-taking are linked in the general population too. Firstborns are more likely to save methodically and avoid speculative investments. Later-borns lean into riskier asset classes, trading more frequently and often chasing volatile opportunities. Just as family dynamics shape fund managers’ portfolios, they quietly steer the portfolios of ordinary investors.
The implication is sobering: our financial decisions are never purely rational. They’re filtered through deep-seated behavioural tendencies forged in childhood.
Childhood environment more broadly
Birth order is only part of the story. A growing literature shows how early environment leaves lasting imprints on financial behaviour:
Socioeconomic status: Managers from wealthier families tend to take greater risks (Malmendier & Nagel, 2011).
Parental loss or divorce: Associated with lower risk-taking and smaller tracking errors (Kuhnen & Miu, 2017).
Cognitive ability: Strong maths skills in youth predict greater likelihood of investing in risky assets later (Grinblatt, Keloharju, & Linnainmaa, 2011).
The common theme is that nurture – environment and early experience – shapes risk attitudes more profoundly than genetics.
Why this matters for investors
Investors might assume fund managers are trained to be purely rational, guided by models rather than instinct. The evidence says otherwise. Personality traits and childhood experiences shape portfolio decisions in ways investors never see. The Bodnaruk and Simonov study also found later-born managers more frequently cited for regulatory breaches, from disclosure failures to customer disputes. These are not small quirks – they have consequences for investor protection.
For savers entrusting pensions and ISAs to active funds, the message is clear: you aren’t just paying for skill. You may also be paying for someone else’s unresolved childhood psychology.
The bigger behavioural finance picture
This research slots neatly into a broader body of evidence. Active managers underperform after fees (Carhart, 1997; Fama & French, 2010). Investors themselves lose around 1% a year through poor timing decisions (Morningstar, 2025). Behavioural biases — overconfidence, sensation-seeking, susceptibility to noise — are everywhere. Birth order is simply the latest reminder that active investing rests on very human, very fallible shoulders.
What investors should do
No amount of research will allow you to identify the “good” managers by CVs or past returns — let alone by their family backgrounds. The rational response is to step away from the personality lottery altogether. Broad, low-cost index funds are immune to the hidden quirks of individual fund managers. Evidence-based investing protects you not only from market uncertainty but also from the biases of those who claim to beat the market.
From playroom to portfolio
The daring younger sibling who always climbed higher or broke more rules may now be running a multi-billion-pound mutual fund. For investors, the lesson is simple: you can’t change a manager’s upbringing, but you can control your own approach. Evidence, not biography, is what delivers lasting outcomes.
References
Got it. I’ll standardise the Bodnaruk & Simonov reference so it matches the others. Since you don’t have the volume/issue/page info yet, the safest APA-style approach is to leave it as in press with the journal name italicised. Here’s the corrected full list:
References
Barber, B. M., & Odean, T. (2000). Trading is hazardous to your wealth: The common stock investment performance of individual investors. Journal of Finance, 55(2), 773–806.
Bodnaruk, A., Simonov, A., & co-authors. (2025). Birth order and fund manager behavior. Journal of Finance, in press.
Carhart, M. M. (1997). On persistence in mutual fund performance. Journal of Finance, 52(1), 57–82.
Cochardt, A., Agarwal, V., & Orlov, V. (2025). Birth order and fund manager’s trading behavior: Role of sibling rivalry. Journal of Corporate Finance, 95, 102852.
Fama, E. F., & French, K. R. (2010). Luck versus skill in the cross-section of mutual fund returns. Journal of Finance, 65(5), 1915–1947.
Grinblatt, M., Keloharju, M., & Linnainmaa, J. T. (2011). IQ and stock market participation. Journal of Finance, 66(6), 2121–2164.
Kuhnen, C. M., & Miu, A. C. (2017). Socioeconomic background, parental loss, and investment decisions. Review of Financial Studies, 30(10), 3531–3561.
Malmendier, U., & Nagel, S. (2011). Depression babies: Do macroeconomic experiences affect risk-taking? Quarterly Journal of Economics, 126(1), 373–416.
Morningstar. (2025). Active/Passive Barometer: EMEA edition. Morningstar Research.
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