Research On The Factors Affecting The Herding Behavior Of Fund Managers From The Perspective Of Incentive

Moral hazard behaviors of fund managers often occur in the securities market, in which the herding behavior of fund managers occurs significantly. The fund managers usually imitate or follow others’ investment decisions, this behavior not only harm the interests of investors, but also against to the healthy development of the securities market. Based on a review of the existing literature, this paper apply the game theory and empirical method to analysis the main factors affecting the fund managers’ herding behavior from the perspective of incentive.The main research content of this paper mainly includes two parts, the first part is game analysis of the incentive mechanism of fund managers and herding behavior, the goal is to prove the existence of herding behavior under the premise of the incentive of fund managers. Based on this, the second part research the factors affecting the herding behavior of fund managers from the perspective of incentive.Firstly, Through the review of the domestic and international research literature, and combined with the status quo of China’s fund market, we identified the existence of moral risk and imperfect incentive mechanism in the fund manager investment behavior at present, we establish game model by holding fund incentive, reputation, relative performance as the proxy of explicit incentive, implicit incentive, dual incentive respectively, research the relation between the incentive mechanism of fund manager and herding behavior, the study found out that fund managers whose holding fund incentive level is high, or reputation level is high will become market "leader", and other fund managers will take the following strategies to ensure their own incentive level, and be subject to herding behavior. And fund managers will follow other managers change the allocation of capital and investment behavior to maintain a relatively stable performance, then a kind of phenomenon appeared in fund managers’ investment decision, that is to say, fund managers will take the herding behavior, considering the explicit incentive and implicit incentive.Secondly, the factors affecting fund managers’ herding behavior from the perspective of incentive is carried out in three steps through the empirical model. The first step, we found out the incentive of fund managers is one of the most important factors affecting their herding behavior, the second step, we analysis the effect factors of fund managers from the fund manager personal trait level, the empirical analysis shows that fund manager’s age, tenure, relative performance are significant positive correlation with their implicit incentive, fund manager’s gender, tenure are significant positive correlation with their explicit incentive, the third step, we take the significant effect factors of the incentive and herding behavior into the regression model, found out that the bigger of the fund manager’s and the longer of the term of office,the more prefer to choose the herding behavior.Finally, this paper put forward some countermeasures and suggestions to avoid the herding behavior of fund managers according to the results of the study, which will help to give full play to the role of incentive and standardize the investment behavior of fund managers in practice, avoid irrational investment decisions caused by the distortion of incentive, maintain the healthy development of the securities market.