Mendoza School of Business

Which Stocks Are Risky? Ask the F.A.A.

Published: August 17, 2011 / Author: Jack Hough

The following is an excerpt from an article in Fast Money that discusses Finance Professor Matt Cain’s research on the kind of risk-seeking behavior that motivates certain people to fly personal aircraft may also make them effective corporate leaders.   To read the entire article visit:  Which Stocks Are Risky? Ask the F.A.A.

When stock investors turn cautious, they tend to favor steady Eddies over volatile Victors. Modest valuations, dividends and dependable earnings fall into fashion and high prices based on expectations of splendid but distant growth fall out. New research suggests that a clue found far away from financial statements can help predict which companies are run by risk-takers: Check the bosses for pilot licenses.

Yes, the idea is a little flighty, and no, you’re not cleared to take off from work and start a day-trading operation based on the findings.

Behavioral finance researchers have long studied links between personality traits and management styles. A quick review of the literature suggests that America’s least-daring boss grew up during the Great Depression, lacks an MBA, attends church and votes Republican. At work, he shuns debt and he prefers paying dividends to making big acquisitions. He earns steady returns for investors but he skimps on research spending, which crimps his firm’s innovation.

This story also appeared in the Wall Street Journal’s MarketBeat.


Topics: Mendoza