Implicit Incentive Impact Studies, The Herding Behavior Of Fund Managers

Fund managers as key-men in the Fund's operation, is one of the key figures in determining the performance of the Fund. However, the information asymmetry being existed between fund investors and fund managers, moral hazard behavior of fund managers have occurred, the most obvious of which is herd behavior. The behavior of fund managers to imitate and follow others'investment strategy, not only harmed the interests of investors, and is not conducive to the healthy development of securities markets. Therefore, based on the reputation theory, tournament theory, behavioral finance theory, combination the methods of literature analysis, model derivation, empirical research etc, analyzes the relationship and its main influencing factors between the implicit incentive and fund managers herding.Reputation incentive and relative performance incentive are two main ways in the implicit incentive. The paper has combed the theory and the literature of implicit incentive and herd behavior, to prove that the presence of implicit incentives in fund manager marketing will help increase the effort level of the Fund Manager and maintain the interest of investors, and also to point out that the shortcomings of the implicit incentive will likely lead to moral hazard behavior.Through game equilibrium analysis, the paper has found:fund managers'portfolio strategy with equal or different reputation is in favor of herd behavior, but plays different roles in each case; the relative performance incentive affects the income of fund managers, leads to the state of fund managers investment follows the changes in the same direction of other fund managers, fund managers have dynamic to imitation and follow.Based on theoretical analysis, the paper proceeds with empirical design and analysis, empirical research is divided into three steps. Obtained the relative performance ranking, fund size, fund management company size, the fund management company performance are the important factors affecting implicit incentive of fund managers through empirical analysis, then the paper analyzes the relationship between the implicit incentive and herd behavior. About the measure of herd behavior, in addition to two indicators of systematic risk deviation and unsystematic risk deviation commonly used by scholars, on the basis of the previous studies in industry select deviation, the paper presents the awkwardness choose deviation, and ultimately proves that fund managers will be in favor of herd behavior because of maintaining the positive effects of the implicit incentive, and that the degree of herding is regulated by fund investment style. Furthermore, further study found that, under the effect of implicit incentives, funds and fund management companies are important factors which affect the herd behavior of fund managers, while the smaller risk of fund investment style, large-scale funds and forward relative performance ranking of fund managers increased preference of herd behavior.