Abstract: Fund ranking is widely published in various media and have essential impact on funds' future cash flow. The degree of active management is the most fundamental feature of the active mutual fund. Hence, it is very important to study how managers adapt their investment behavior according to the economic incentives from the aspect of active management. In this article, firstly the relationship between funds' mid-year ranking and the later degree of active management theoretically and empirically are illustrated. Theoretically, a two-period tournament model is developted, and it is indicated that the wining managers are more likely to adopt higher degree of active management relative to the losers. Empirically, using the historical data of open-ended fund from 2006 to 2011 in China, it is found that the mid-year "winners" fund that earn returns above the median, did increase their degree of active relative to the losers. Our empirical finding confirmed the results of our theoretical model.

Key words: open-ended fund, relative performance, active management, unbalanced panel data