Do Locals Know Better? A Comparison of the Performance of Local and Foreign Institutional Investors

49 Pages Posted: 18 Mar 2009 Last revised: 16 Jun 2017

See all articles by Miguel A. Ferreira

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Pedro Matos

University of Virginia - Darden School of Business; European Corporate Governance Institute (ECGI)

João Pedro Pereira

Nova School of Business and Economics

Pedro Pires

Nova School of Business and Economics

Date Written: May 9, 2017

Abstract

We compare the performance of local versus foreign institutional investors using a comprehensive data set of equity holdings in 32 countries during the 2000-2010 period. We find that foreign institutions perform as well as local institutions on average, but only domestic institutions show a trading pattern consistent with an information advantage. Our results suggest a smart-money effect of local institutions in countries subject to higher information asymmetry, non-English speaking countries, countries with less efficient stock markets, with poor investor protection, or high levels of corruption. The local advantage is more pronounced in periods of market turmoil and in illiquid stocks.

Keywords: Mutual Funds, Domestic, Foreign, Holdings, Global, Local, Money managers

JEL Classification: G11, G15, G23

Suggested Citation

Ferreira, Miguel Almeida and Matos, Pedro and Pereira, João Pedro S.S. and Pires, Pedro M., Do Locals Know Better? A Comparison of the Performance of Local and Foreign Institutional Investors (May 9, 2017). Available at SSRN: https://ssrn.com/abstract=1361747 or http://dx.doi.org/10.2139/ssrn.1361747

Miguel Almeida Ferreira

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Pedro Matos

University of Virginia - Darden School of Business ( email )

University of Virginia
P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434 243 8998 (Phone)
434 924 0726 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty-research/directory/pedro-matos/

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

João Pedro S.S. Pereira (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

Pedro M. Pires

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

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