Market Cycle, Investor Behavior And Evolution Of Fund Manager Risk Taking

In General awareness, fund managers have professional and long-term investmentexperience, which can always make rational decisions and judgments. But the truth isfar from it, because the existence of the agency relationship, fund managers arealways irrational. Brown et al in1996found that fund managers which rank at last inmid-year performance ranking always improve the level of portfolio risk in the secondhalf year，which Brown call it as "Fund Tournaments Hypothesis". But subsequentstudies on whether this hypothesis exists, it is still considerable controversy. At thesame time, what caused this phenomenon has become a hot issue. Many scholars havegiven some explanation based on characteristic of fund managers, agency contractsand market transaction costs. In this paper, we will study on risk taking behavior onmarket cycle and investor behavior.Through experimental analysis we found that when the investor behavioral biasesexist, average risk taking level of fund managers will decline, compared with onlyna ve investor in the market; Assuming there is limited investor attention behavior in abull market, fund managers which rank at last will raise their risk level in their asset;When disposition effect exists, the investor’s disposition will not lead fund tournamentbehavior, fund managers will become lazy and decrease the level of risk asset.The exited of sophisticated investors significantly limited the behavior fundtournament, reducing the risk who rank at the last, and also affected other fundmanagers to reduce the risk.The exited of sophisticated investors significantly limited the behavior fundtournament, reducing the risk who rank at the last, and also affected other fundmanagers to reduce the risk.This phenomenon caused by changes in investor structure,which ultimately affects the risk of the fund managers’ risk taking behavior. We firstlyexplain fund tournament hypothesis from the perspective of Investors populationstructure evolution, expand fund tournament behavior from adaptive of investors.