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Information Barriers in Global Markets: Evidence from International Subcontracting Relationships

81 Pages Posted: 20 Jul 2015 Last revised: 1 Nov 2017

Massimo Massa

INSEAD - Finance

David Schumacher

McGill University

Date Written: October 31, 2017

Abstract

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

Massa, Massimo and Schumacher, David, Information Barriers in Global Markets: Evidence from International Subcontracting Relationships (October 31, 2017). INSEAD Working Paper No. 2015/56/FIN. Available at SSRN: https://ssrn.com/abstract=2632938 or http://dx.doi.org/10.2139/ssrn.2632938

Massimo Massa

INSEAD - Finance ( email )

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

David Schumacher (Contact Author)

McGill University ( email )

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

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

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