Catering Through Globalization: Cross-border Expansion and Misallocation in the Global Mutual Fund Industry

97 Pages Posted: 25 Apr 2018 Last revised: 22 Aug 2019

See all articles by Si Cheng

Si Cheng

Chinese University of Hong Kong - Department of Finance

Massimo Massa

INSEAD - Finance

Hong Zhang

Tsinghua University - PBC School of Finance

Date Written: July 24, 2019

Abstract

Efficient financial globalization should reward high-skilled financial institutions and punish low-skilled institutions. We show that the globalization of the mutual fund industry in the beginning of the century has exhibited the opposite pattern: low-skilled companies can benefit from globalization by catering to the demand of unsophisticated investors for foreign investment. This catering strategy attracts capital for fund companies but fails to deliver performance or diversification benefits to investors. Moreover, its associated cross-border capital flows reduce price efficiency and liquidity in the target country. Our results highlight the potential existence of a short-term behavioral component of financial globalization in distorting efficiency.

Keywords: Globalization, Cross-Border Capital Flows, Mutual Funds, Skills, Market Efficiency

JEL Classification: F36, G15, G23

Suggested Citation

Cheng, Si and Massa, Massimo and Zhang, Hong, Catering Through Globalization: Cross-border Expansion and Misallocation in the Global Mutual Fund Industry (July 24, 2019). Available at SSRN: https://ssrn.com/abstract=3167165 or http://dx.doi.org/10.2139/ssrn.3167165

Si Cheng (Contact Author)

Chinese University of Hong Kong - Department of Finance ( email )

12/F, Cheng Yu Tung Building
No.12, Chak Cheung Street
Shatin, N.T.
Hong Kong

HOME PAGE: http://www.bschool.cuhk.edu.hk/staff/cheng-si/

Massimo Massa

INSEAD - Finance ( email )

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

Hong Zhang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

HOME PAGE: http://eng.pbcsf.tsinghua.edu.cn/content/details167_7995_x.html

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