In Military We Trust: The Effect of Managers' Military Background on Mutual Fund Flows

This paper shows that trust-building characteristics of fund managers affect purchase decisions of mutual fund investors. We exploit variation in fund managers' prior affiliations with the well-trusted U.S. military institution and relate it to fund flows. Results show that funds with ex-military managers receive significantly higher flows and grow by 6.5% p.a. faster relative to other funds. Investor inclination toward military managers strengthens with managers' military involvement and its salience, and nationwide confidence in the military. Military managers' superiority in competition for investor funds is not due to variation in fund or managerial attributes and robust to several alternative explanations.