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Herding (behavioural finance)

Y

yogesh167

Member
Hello

Could you please confirm what does the below sentence mean on pg16 of ch7 related to herding-

'the incentives facing fund managers (for example, the idea that if every manager performs equally badly you are unlikely to be sacked)'

Regards
Yogesh
 
As a fund manager, one reason for being sacked is if you underperform your peers. So, arguably, fund managers may be concerned about their job security and so less concerned with the absolute level of returns they generate and more concerned about how their fund performs relative to the funds of their peers. This may lead fund managers to copy each other (so they don't underperfom their peers) - so they act in similar ways and take similar investment decisions ie perform as a herd.
 
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