Mutual Fund Risk-Taking and Local Religious Beliefs*

Consistent with Protestants (Catholics) being more (less) risk-averse than the general population, we find that mutual funds located in regions with low Protestant (or high Catholic) population have higher total and idiosyncratic return volatilities. These higher volatilities are driven by portfolio under-diversification and aggressive interim trading, rather than overweighting risky (local) stocks, exposure to systematic risks, or differences in managers’ gambling attitudes. Additionally, intra-year volatility increases due to tournament-like competition are observed only in funds in low-Protestant (high-Catholic) regions. In summary, our findings indicate that local religious beliefs affect the risk-taking behaviors and investment decisions of professional fund managers. * We thank Jennifer Huang and Paul Irvine for helpful discussions and valuable comments. We are also grateful for excellent research assistance from Lei Gao and Michael Patterson.