Information Barriers in Global Markets: Evidence from International Subcontracting Relationships
81 Pages Posted: 20 Jul 2015 Last revised: 1 Nov 2017
Date Written: October 31, 2017
We study the link between information barriers in global markets and the organizational form of asset management. Fund families outsource funds in which they are at an informational disadvantage to generate performance. Using a structural model of self-selection, we endogenize the outsourcing decision and estimate positive gains from outsourcing of around 4-14 bps per month, thereby reconciling underperformance of outsourced funds with performance maximization by fund families. The gains from outsourcing provide a novel proxy for the information barriers that segment global financial markets. The more segmented the underlying markets where the funds invest, the larger the gains from outsourcing.
Keywords: Mutual funds, Outsourcing, International Markets, Information Barriers
JEL Classification: G15, G23, G30, G32
Suggested Citation: Suggested Citation