Behavioral Finance: Fund Managers' Psychological Traits And Risk Management

Abstract

When it comes to managing risk and making decisions, fund managers are influenced by certain personality features. Behavioural finance sheds light on these tendencies. Examining the relationship between psychology and finance, this study looks at the years 2012–2022, specifically at the effects of cognitive biases, emotional intelligence, and personality factors on the capacity of fund managers to reduce risk and protect investor money. This research analyses the influences of important personality qualities on the results of fund management using data collected over a decade. These traits include herd behaviour, overconfidence, and loss aversion. Successful fund managers make use of their psychological strengths while minimising negative biases, according to the study that analyses these attributes using case studies and empirical data. In contrast to emotionally intelligent fund managers, who are better able to handle market uncertainty and make measured judgements, overconfident fund managers may take unnecessary risks.

The article explores the significance of emotional resilience and stress management, showing how calm fund managers may prevent investors' money from being lost due to hasty judgements. Fund managers are able to respond to changing market circumstances by adjusting their strategy, which is why flexibility and receptivity to new information are so important. The study finds the best ways to incorporate behavioural insights into risk management frameworks by reviewing the literature and interviewing experienced fund managers. The results highlight the need of ongoing psychological training and development for better decision-making on the part of fund managers.

In the end, this research adds to what is already known about behavioural finance by showing how important fund managers' personality qualities are for managing risk and keeping investors' money safe. In order to maximise financial performance and investor security, it gives fund management organisations practical suggestions for creating a culture of psychological awareness and resilience.