Does religion play a key part in the way investors and managers place bets on their mutual funds? The answer is “Yes,” according to new research from the University of Georgia and Southern Methodist University.

Specifically, the findings show that mutual funds headquartered in heavily Catholic areas tend to take more risks and funds in heavily Protestant areas take less risks, said lead author Tao Shu, assistant professor of banking and finance in the UGA Terry College of Business.

“Finding evidence that a local culture’s religious beliefs affect mutual funds’ risk-taking decisions is surprising because this is a very competitive industry,” Shu stated. “One would expect that profit chasing would eliminate all the impact of culture or anything else. But, surprisingly, a local culture’s religious beliefs still impact risk-taking decisions.”

“One suggestion is that many Protestant congregations are against gambling, but Catholic churches are more tolerant of it—they may even use lotteries to generate funding for the church.”

Local religious beliefs can affect a fund manager’s personal beliefs and in turn mutual fund behaviors, according to Shu.

“Additionally, people tend to choose a place to work where the local culture is consistent with their personal beliefs. So it’s possible that Protestant and Catholic fund managers self-select,” he said. “Also, people like to invest in local stocks, so it’s possible they will invest in local mutual funds. In this case, for example, local Catholic investors may prefer a higher-risk strategy and pressure managers into making those kinds of decisions.”

The paper was co-authored with Eric Yeung of the Terry College and Johan Sulaeman of Southern Methodist University.

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