Abstract
ABSTRACT We examine how Confucian culture, a cornerstone of traditional Chinese culture that profoundly influences Asian countries, affects hedge funds. Using a sample of 482 Chinese hedge fund companies that cover the period from April 2010 to December 2022, we find that hedge funds with a stronger Confucian cultural impact take on less investment risk and deliver higher returns, resulting in elevated Sharpe ratios and alphas. This effect operates through institutional supplementation. It is more pronounced at firms located in regions with lower levels of marketization and restricted openness, where formal institutions are lacking. Furthermore, we observe that this effect stands out in circumstances where active fund management is needed.
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