Informal managerial risk aversion functions as an unwritten stop-loss in arbitrage

Evidence

In some circumstances, such a decision by management might even be anticipated by the traders: “You know that if … your manager sees that you’re down $10 million … the likelihood that lie will ask you to get out of this position is very high. It’s not a formal stop-loss but … it’s there.” (Kaplanis interview) In the case of hedge funds, the issue was investor rather than manager queasiness. — Donald MacKenzie, An Engine, Not a Camera, 1045

Categorization

• XREF: connects to: Trading folklore and managers directly counteract prospect theory’s loss-aversion bias — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1202

Broader Connections

• Trading folklore and managers directly counteract prospect theory’s loss-aversion bias #expands (0.82) — Donald MacKenzie, An Engine, Not a Camera, 1202