Mutual fund managers face various incentives while they manage holding portfolios.
We decided to take the incentive proxy idea from Alexander, Stefan, Tanja (2009) while we think it is a simple but concrete empirical outcome to follow. According to our research, young industry tenure managers with career concerns significantly support the hypothesis one; while young fund tenure managers don’t support it. The reason is because of young fund tenure managers might possess long industry tenure already. It could influence the original short tenure definition. Therefore, we suggest research later on try to find out if young fund tenure managers still possess career concerns.
On the other hand, our market competition measure is significant positively with herding. It means when a fund’s market competition become fiercer, this fund is more likely to take herd. The testing outcome is accorded with hypothesis two, which is considered market competition is assumed to increase the possibility of herding. However, there is a presumption before we set market competition: particular fund with biggest market share during holding period is considered as a first mover. Therefore, when each fund’s market competition become fiercer, it is taken as follower. This presumption is not conscientious enough to determine a particular fund is a first mover or follower. We suggest research later on should revise this measure and set the presumption properly.
33
Appendix
Table1- Description of variables
aYoung manager: 1 =industry tenure rank ≤10%, 0 = industry tenure rank >10%.
bOld manager: 0 = industry tenure rank <90%, 1 = industry tenure rank ≥90%.
cCareer Concern: 0 =quarterly market return≤ 0 , 1 = quarterly market return> 0.
dMarket Competition Variation: 0 =Market Competition in t- Market Competition in (t-1) ≥ 0 , 1 = Market Competition in t- Market Competition in (t-1)< 0.
Variables N Mean Minimum Maximum Std. Dev.
Herding (𝐻(𝑠,𝑖𝑡)) 284225 0.016 -0.525 0.508 0.045
Career concern- (𝐷𝑅𝐼) 284225 0.364 0 1 0.481
Young Manager (Diyoung) 194209 0.589 0 1 0.492
Young manager and Career concern
194209 0.218 0 1 0.413
Market competition variation (𝐷𝑀𝐾)
278917 0.091 0 1 0.377
Fund age 284225 96.955 0 1064. 100.949
Fund flow 278940 -0.499 0 48340.211 102.687
Fund size 281018 514.754 0 129835.300 2622.756
Return 280354 0.006 0 1.783 0.036
Turnover ratio 278205 0.936 0 1.532 0.026
Volatility 266752 0.050 0 150.910 2.136
12b-1 fee 268871 0.003 0 0.035 0.004
34
Table2- Pearson Correlation Coefficients
Pearson Correlation Coefficients Prob > |r| under H0: Rho=0
Number of Observations
Industry tenure(t-1) Dummy of MK(t-1) Fund size(t-1) Fund age (t-1)
Industry tenure(t-1)
35
Table 3-a. Summary of Multiple Regression Analysis for Variables Predicting Herding (N =178023)
Note: aYoung manager: 1 = tenure rank ≤10%, 0 = tenure rank >10%. bOld manager: 0 = tenure rank <90%, 1 = tenure rank ≥90%. cCareer Concern: 0 =quarterly market return≤ 0 , 1 = quarterly market return> 0. dMarket Competition Variation: 0 =Market Competition in t- Market Competition in (t-1) ≥ 0 , 1 = Market Competition in t- Market Competition in (t-1)< 0.
*T-statistics value is in the parentheses, ***,** and *denote significance at 1%, 5%and 10% level respectively.
𝐻(𝑠,𝑖𝑡)= 𝛽0+ 𝛽1𝑅𝐼𝐷𝑡−1𝑅𝐼 + 𝛽2𝐷𝑡−1𝑦𝑜𝑢𝑛𝑔+ 𝛽3𝐷(𝑖,𝑡−1)𝑀𝐾 + 𝛽4𝐹𝑢𝑛𝑑 𝐴𝑔𝑒(𝑖,𝑡−1)+ 𝛽5𝐹𝑢𝑛𝑑 𝑆𝑖𝑧𝑒(𝑖,𝑡−1)+ 𝛽6𝑁𝑒𝑤𝐼𝑛𝑓𝑙𝑜𝑤(𝑖,𝑡−1)
36
Table 3-b. Summary of Multiple Regression Analysis for Variables Predicting Herding (N =178023)
Note: aYoung manager: 1 = tenure rank ≤10%, 0 = tenure rank >10%. bOld manager: 0 = tenure rank <90%, 1 = tenure rank ≥90%. cCareer Concern: 0 =quarterly market return≤ 0 , 1 = quarterly market return> 0. dMarket Competition Variation: 0 =Market Competition in t- Market Competition in (t-1) ≥ 0 , 1 = Market Competition in t- Market Competition in (t-1)< 0.
*T-statistics value is in the parentheses, ***,** and *denote significance at 1%, 5%and 10% level respectively.
𝐻(𝑠,𝑖𝑡)= 𝛽0+ 𝛽1𝑅𝐼𝐷𝑡−1𝑅𝐼 + 𝛽2𝐷𝑡−1𝑦𝑜𝑢𝑛𝑔+ 𝛽3𝐷(𝑖,𝑡−1)𝑀𝐾 + 𝛽4𝐹𝑢𝑛𝑑 𝐴𝑔𝑒(𝑖,𝑡−1)+ 𝛽5𝐹𝑢𝑛𝑑 𝑆𝑖𝑧𝑒(𝑖,𝑡−1) Volatility -0.08996*** 0.00541 (-16.62) -0.08972*** 0.00541 (-16.58) 12b-1 fee -0.11361*** 0.00031 (-3.65) -0.11369*** 0.03113 (-3.65) Adj R2
0.0154 0.0155
F for change in R2
104.00*** 103.97***
37
Literature References
English Literatures
Alexander, Stefan, Tanja (2009),”Employment risk compensation incentives, and managerial risk taking: Evidence from the mutual fund industry.” Journal of Financial
Economics, 92, 92-108.
Avery, Christopher N. and Chevalier, Judith A (1999), “Herding over the career.”
Economics Letters, 63, 327–333.
Banerjee, Abhijit V. (1992), "A Simple Model of Herd Behavior." The Quarterly Journal of
Economics, 107(3), 797-817.
Barberis, Nicholas and Shleifer, Andrei (2003),” Style investing.” Journal of Financial
Economics, 68,161–199.
Bikhchandani, Sushil, Hirshleifer, David, and Welch, Ivo (1992) “A Theory of fads, fashion, custom, and cultural change as informational cascades.” Journal of Political Economy, 100(5), 992-1026.
Bikhchandani, Sushil, and Sharma, Sunil (2001), “Herd Behavior in Financial Markets.”
IMF Staff Papers, 47(3), 279-310.
Boyson, Nicole M. (2005), “Another look at career concerns: a study of hedge fund managers.” Unpublished working paper, Northeastern University, Boston.
Boyson, Nicole M. (2010),” Implicit incentives and reputational herding by hedge fund managers.” Journal of Empirical Finance, 17, 283–299.
Chevalier, Judith and Ellison, Glenn (1999), “Career concerns of mutual fund managers.”
Quarterly Journal of Economics, 114 (2), 389–432.
Devenow, Andrea and Welch, Ivo (1996),”Rational herding in financial economics.”
European Economic Review, 40, 603-615.
38
Fama, Eugene F. (1980), “Agency problems and the theory of the firm.” The Journal of
Political Economy, 88(2), 288-307.
Friend, I., Blume, M. and Crockett, J. (1970), “Mutual Funds and Other Institutional Investors.” New York: McGraw-Hill.
Froot, K. A., Scharfstein, D. S. and Stein, J. C. (1992), “Herd on the street: informational inefficiencies in a market with short-term speculation.” Journal of Finance, 47(4), 1461–
1484.
Gibbons, R., Murphy, K., 1992. “Optimal incentive contracts in the presence of career concerns.” Journal of Political Economy, 100, 468–505.
Goldman, Eitan and Slezak, Steve L. (2003), “Delegated Portfolio Management and Rational Prolonged Mispricing.” The Journal of Finance, 58(1), 283-311.
Grinblatt, Mark, Titman, Sheridan and Wermers, Russ (1995),” Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of MutualFund Behavior.” The
American Economic Review, 85(5),1088-1105.
Hirshleifer, David, Subrahmanyam, Avanidhar and Titman, Sheridan (1994),”Security Analysis and Trading Patterns when Some Investors Receive Information Before Others.”
The Journal of Finance, 49(5), 1665-1698.
Holmstrom, Bengt (1999),” Managerial Incentive Problems: A Dynamic Perspective.”
Review of Economic Studies, 66, 169-182
Hu, F., Hall, A., Harvey, C. (2000), “Promotion or demotion? An empirical investigation of the determinants of top mutual fund manager change.” Unpublished working paper,
Duke University.
Huang, Ching-mann (2005),”Uncertainty and Investment in Fund Management: Special Topics on Career Concerns, Tournament and Herding Behavior.” Dissertation, National
Cheng Kung University Department of Business Administration.
39
Goldman, Eitan and Slezak, Steve L. (2003),”Delegated Portfolio Management and Rational Prolonged Mispricing.” The Journal of Finance, 58(1), 283-311
Karceski, J. (2002), “Returns-chasing behavior, mutual funds, and Beta’s death.” Journal
of Financial and Quantitative Analysis, 37, 559–594.
Khorana, A., (1996), “Top management turnover: an empirical investigation of mutual fund managers.” Journal of Financial Economics, 40, 403–427.
Lakonishok, Josef, Shleifer, Andrei Robert and Vishny, W. (1992), “The impact of institutional trading on stock prices” Journal of Financial Economics, 31, 13-43.
Lazear, Edward P. and Rosen, Sherwin (1981),”Rank-order tournaments as optimum labor contracts.” NBER Working Paper Series, No.401
Sirri, Erik R. and Tufano, Peter (1998), “Costly search and mutual fund flows.” The Journal
of Finance, 78(5).
Stracca, Livio (2006), “Delegated portfolio management: a survey of the theoretical literature.” Journal of Economic Surveys, 20 (5), 823-826.
Sushil Bikhchandani, David Hirshleifer and Ivo WelchSource (1998), “Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades.” The Journal of
Economic Perspectives, 12, (3), 151-170.
Massa, Massimo and Patgiri, Rajdeep (2005), “Compensation and managerial herding:
evidence from the mutual fund industry.” Unpublished working paper, Finance
Department, INSEAD.
Modigliani, Franco and Pogue, Gerald A. (1975), ‘‘Alternative Investment Performance Fee Arrangements and Implications for SEC Regulatory Policy.’’ Bell Journal of
Economics, VI, 127–160.
Roberts, Peter W. (1999),”Product innovation, Product-market competition and persistence profitability in the U.S. pharmaceutical industry.” Strategic Management Journal, 20,
40
655–670.
Scharfstein, David S., and Stein, Jeremy C. (1990). “Herd Behavior and Investment.”
American Economic Review, 80(3), 465-479.
Hortaçsu, Ali. and Syverson, Chad (2004),”Product Differentiation, Search Costs, and Competition in the Mutual Fund Industry: A Case Study of S&P 500 Index Funds.” The
Quarterly Journal of Economics, 119(2), 403-456.
Welch, Ivo (1992), "Sequential Sales, Learning and Cascades." The Journal of Finance, 47(2), 695-732.
Wermers, Russ (1999), “Mutual Fund Herding and the Impact on Stock Prices.” The
Journal of Finance, 54(2), 581-622.
Zhao, X. (2005), “Exit decisions in the US mutual fund industry.” Journal of Business, 78, 1365–1401.
Zwiebel, Jeffrey (1995),”Corporate Conservatism and Relative Compensation.” Journal of
Political Economy, 103(1), 1-25.
Mandarin Literature
李世英(2006)，「共同基金經理人交易從眾行為之實證研究―二項分配模式與三項分
配模式之比較」，樹德科技大學金融保險研究所碩士論文。
邱佳璇(2009)，「從投資人觀點與誘因契約結構探討基金經理人從眾行為」，臺灣大學
財務金融學研究所碩士論文。
傅澤偉和林曼莉（2009）「基金特性及外部環境對於基金經理人從眾行為的相關性」，
台灣銀行季刊，61(2)，26-45。
趙俊涵(2010)，「市場狀態、投資人風險偏好與基金經理人從眾行為」，臺灣大學 財 務金融學研究所碩士論文。
吳介元(2013)，「國內基金經理人從眾行為之影響因素」，臺灣大學經濟學研究所碩 士論文。
41
陳志杰(2013)，「台灣共同基金特徵與共同基金經理人個人屬性對共同基金從眾行為
之關聯性」，國立臺北科技大學經營管理系碩士論文。