Subcontracting in International Asset Management: New Evidence on Market Integration

53 Pages Posted: 9 Mar 2015

Date Written: March 2015

Abstract

We study the decisions of international asset managers to outsource portfolio management of their funds and we link these decisions to market integration. Using a structural model of selfselection, we endogenize the decision to outsource in a comprehensive sample of international mutual funds and identify both performance and non-performance related determinants of outsourcing. Outsourcing fund management generates net positive gains to fund families of around 8-17 bp per month despite the ex-post underperformance of outsource funds relative to inhouse funds. Then, we establish that the performance improvements from outsourcing are directly related to segmentation in the underlying asset markets.

Keywords: International Markets, Market Integration, Mutual funds, Outsourcing

JEL Classification: G15, G23, G30, G32

Suggested Citation

Massa, Massimo and Schumacher, David, Subcontracting in International Asset Management: New Evidence on Market Integration (March 2015). CEPR Discussion Paper No. DP10465. Available at SSRN: https://ssrn.com/abstract=2575769

Massimo Massa (Contact Author)

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

David Schumacher

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada
5143984778 (Phone)

HOME PAGE: http://www.davidschumacher.info

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