Information Asymmetries and Institutional Investor Mandates

59 Pages Posted: 20 Apr 2016

Date Written: March 1, 2011

Abstract

The preference among foreign institutional investors for large firms is widely documented. This paper deepens our understanding of international investments by providing evidence that foreign institutional investors with broader investment scopes prefer to invest in firms where they are less prone to information disadvantages than more specialized ones. In other words, there is heterogeneity in how information asymmetries affect investors' portfolio choices. Theoretically, a model with costly information and short-selling constraints shows that the broader the investor's mandate, the smaller the incentives to gather and process costly information. Empirically, an analysis of the mutual fund industry in the United States supports this hypothesis.

Keywords: Mutual Funds, Debt Markets, Emerging Markets, Investment and Investment Climate, Microfinance

Suggested Citation

Didier, Tatiana, Information Asymmetries and Institutional Investor Mandates (March 1, 2011). World Bank Policy Research Working Paper No. 5586. Available at SSRN: https://ssrn.com/abstract=1792243

Tatiana Didier (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States
(202)458-1525 (Phone)

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