Explicit Incentives On The Investment Behavior Of Fund Managers

There is a principal-agent relationship between investor and mutual fund manager in fund's operation, because of the inconsistent interest and the information asymmetry between investor and manager, manager probably do harm to the investor's return for maximizing his own return. This problem can be solve by designing effective incentive mechanism, and the design of the incentive contract is a way which is directly and obvious. This article studied the influence of explicit incentive on mutual fund manager's investment behavior from the view of theoretical analysis and empirical test, applied to the principal-agent model and security portfolio investment theory.This article constructed a explicit incentive model to analyze the relationship between management fee ratio and mutual fund manager's effort level and the impact factors of management fee ratio. The paper also built a model about the mutual fund manager's choice of effort level and risk,the result showed that when mutual fund manager's risk aversion was less than or equal to the investor's risk aversion, manager would make a higher effort level than investor's expectation on the manager's effort level; the difference between manager's risk aversion and investor's risk aversion had little influence on the fund risk, and investor would choose a higher risk than investor's expectation.Based on theoretical analysis, combined the open fund data of China, empirical test was taken on the relationship between management fee ratio and mutual fund manager's effort level, the impact factors of management fee ratio, and the effect of management fee on the mutual fund return and risk. The results showed that asset-based fee ratio applied in China had no relationship with mutual fund manger's effort level, which proved that the asset-based fee ratio had little incentive to mutual fund manager, the mutual fund manager's risk aversion was negative related to his effort level, which suggested that mutual fund manager more afraid of risk would make lower effort level, and the mutual fund's information ratio was one of the impact factors of his effort level, a negative relationship between them; the impact factors of management fee ratio included free risk rate, mutual fund manager's risk aversion, initial asset, information ratio and systematic risk; management fee was negative related to the fund return and mutual fund scale was positive related to the return, which can verify the conclusion that management fee ratio was not appropriate in China; the empirical result also showed that management fee had a positive relationship with mutual fund risk, management fee had no risk restriction on mutual fund manager, it was possible that mutual fund manager pursued excessive speculation behavior to obtain higher management fee.