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Behavior of fund managers in Malaysian investment management industry

Zamri Ahmad (Universiti Sains Malaysia, Penang, Malaysia)
Haslindar Ibrahim (Universiti Sains Malaysia, Penang, Malaysia)
Jasman Tuyon (Universiti Teknologi MARA, Sabah, Malaysia)

Qualitative Research in Financial Markets

ISSN: 1755-4179

Article publication date: 7 August 2017



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 the 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 behavioral 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, practicing 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.



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.


Ahmad, Z., Ibrahim, H. and Tuyon, J. (2017), "Behavior of fund managers in Malaysian investment management industry", Qualitative Research in Financial Markets, Vol. 9 No. 3, pp. 205-239.



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