How Global is Your Mutual Fund? International Diversification from Multinationals

60 Pages Posted: 19 Mar 2019 Last revised: 3 Jun 2019

See all articles by Irem Demirci

Irem Demirci

Nova School of Business and Economics

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Pedro Matos

University of Virginia - Darden School of Business; European Corporate Governance Institute (ECGI)

Clemens Sialm

University of Texas at Austin - McCombs School of Business; National Bureau of Economic Research (NBER); AQR Capital Management, LLC

Date Written: February 27, 2019

Abstract

We show that mutual funds worldwide offer substantial indirect international exposure through their stock holdings of multinational corporations. Domestic funds' international exposure increases by 32 percentage points when we take into account international corporate diversification. We find that funds with higher indirect international exposure perform significantly better in both the cross section and time series. This outperformance is more pronounced among small fund families, and funds that invest in small stocks, growth stocks, and less developed capital markets. Our findings support the hypothesis that international portfolio diversification from multinationals reduces the transaction and information costs of investing abroad.

Keywords: Home bias, Mutual funds, Performance, International diversification, Multinationals, Cross-border M&A

JEL Classification: F23, G11, G15, G23

Suggested Citation

Demirci, Irem and Ferreira, Miguel Almeida and Matos, Pedro and Sialm, Clemens, How Global is Your Mutual Fund? International Diversification from Multinationals (February 27, 2019). Available at SSRN: https://ssrn.com/abstract=3342519 or http://dx.doi.org/10.2139/ssrn.3342519

Irem Demirci (Contact Author)

Nova School of Business and Economics ( email )

Lisbon
Portugal

Miguel Almeida Ferreira

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Pedro Matos

University of Virginia - Darden School of Business ( email )

University of Virginia
P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434 243 8998 (Phone)
434 924 0726 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty-research/directory/pedro-matos/

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Clemens Sialm

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

HOME PAGE: http://faculty.mccombs.utexas.edu/Clemens.Sialm/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

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