Research On The Impact Of Performance Ranking On Fund Manager’s Investment Behaviors

In the past 30 years,the fund industry has achieved remarkable development in China.Therefore,much attention has been paid to the research on fund governance at the same time.At present,the assessment of fund managers is mainly based on the relative performance ranking.It compares the fund market to a continuous annual competition,which brings compensation incentives and career concerns to fund managers.The former acts as a catalyst for fund managers to adjust their risk portfolio,while the latter has the opposite effects.In addition,the relative intensity of compensation incentives and career concerns varies with different stock market cycle,so it is highly necessary to take the stock market cycle as an important variable for the prediction of the Fund Tournament Theory.We use the data of open-end funds from 2010 to 2019 as the sample to analyze the impact of fund performance rankings on fund managers’ risk adjustments in different markets.It is proved that fund managers will significantly adjust their investment behaviors due to the relative performance ranking mechanism In the meanwhile,the risk adjustments of the winners and losers in the previous rankings vary according to the performance of stock market cycle:When experiencing a good market cycle,the losers of the relative performance ranking will increase the risk of their portfolio to get more year-end bonuses;However,When experiencing a bad market cycle,the losers of the relative performance ranking are more inclined to reduce the risk of the portfolio to keep their positions.Finally,we empirically analyze how the behaviors of the fund managers’ risk adjustment affect their year-end relative performance rankings.When it is in a bull market cycle,it is also found that the performance rankings of losers have been risen significantly,while the rankings of winners have been declined.Yet there is no similar conclusion to reveal the correlation in the bear market.Therefore,we believe that the losers in the previous rankings are more suitable to take risks in the bull market cycle.The research and analysis of this paper explains the reasons for the instability of fund market competition prediction,which enriches the relevant theories of fund market competition mechanism and provides some ideas and reference value for fund governance in China.