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Behavior of fund managers in Malaysian

investment management industry

Zamri Ahmad, (Universiti Sains Malaysia, Penang, Malaysia)

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Single Sentence Summary:

This paper suggests that the institutional investors of Malaysian investment management industry are
expected to behave in a boundedly rational manner, and fund managers who are bounded rationally are
challenged with various behavioral biases of individual, cultural and institutional forces.

This paper aims to explore the relevance of bounded rationality to the practice of institutional investors in
Malaysia. Understanding institutional investor behavior is important, as it can determine t he asset prices and
consequently the market behavior.

A set of questionnaires is used to solicit information regarding the understanding and practical application of
behavioral finance theories and strategies among fund managers in the Malaysian investment management
practice. In the process, bounded rational theory is aimed to be validated. Fund managers’ possible bounded
rational behavior is assessed with reference to their investment management approaches and strategies right
from individual beliefs and acquisition of information, as well as investment management and strategies used.

The findings lend support to the notion that institutional investors too, being normal human beings, are
expected to think and behave in a boundedly rational manner as postulated in bounded rational theory. The
sources of bounded rationality are individual, institutional and social forces. Thus, portfolio trading and
investment management strategies are exposed to wide varieties of behavior al risks. Despite the notions that
behavioral risks are real and the impact on fund performance could be pervasive, fund managers’ self -
awareness regarding control and institutional readiness to govern behavioral risks in investment practices is
still low.

Research limitations/implications
Empirical evidence drawn in the current paper is subjected to small sample size and specific focus on
Malaysian context. Despite this limitation, the sample is statistically sufficient and provides a fair
representation, as well as quality opinions, of fund manager’s investment management behavior in Malaysia.
This research provides valuable implications to practitioners (fund managers) and regulators (investment
management and capital market policymakers). In practice, the current study draws some practical ideas,
especially for buy-side institutional investors, on the source and impact of behavioral biases on fund
management practices and performance. For regulators, this research highlighted the needs and possible
ways to regulate these behavioral risks.

The current paper provides new insights on the theory and practice of the institutional investor. In theory, this
research provides evidence of bounded rationality of institutional investor behavior, pra cticing in the asset
management industry in the emerging markets of Malaysia. This evidence lends support to the validity of the
bounded rationality theory in explaining institutional investor behavior. In practice, thisresearch provides new
insights on the relevance of behavioral finance perspectives and strategies in the asset management industry
practice and policy.

Malaysia, Institutional investors, Bounded rationality, Behavioral risks, Emerging stock market

Research Paper

Emerald Publishing Limited

19 August 2016

02 March 2017

25 April 2017

The authors are thankful for the editor’s and anonymous reviewers? valuable comments and suggestions. This
research is funded by Universiti Sains Malaysia (USM) through USM-RUI Grant No. 1001/PMGT/816276. The
authors greatly acknowledge the financial assistance provided by the university.

© Emerald Publishing Limited 2017
Published by Emerald Publishing Limited
Licensed re-use rights only

Zamri Ahmad, Haslindar Ibrahim, Jasman Tuyon, (2017) "Behavior of fund managers in Malaysian investment
management industry", Qualitative Research in Financial Markets, Vol. 9 Issue: 3, pp.205-