Financial Globalization vs. Income Inequality: The Surprising Role of Delegated Portfolio Flows in Taming the Top 1%

66 Pages Posted: 31 Aug 2020 Last revised: 1 May 2021

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

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2021

Abstract

We document a surprising finding that foreign portfolio inflows delegated through global mutual funds reduce the income of the top 1%. To rationalize this observation, we utilize a comprehensive database on the worldwide ownership of private and public firms for 2001–2013 to trace income inequality to its micro foundation of sales revenue accrued to rich families. We find that large delegated foreign inflows induce local rich families to sell concentrated yet profitable assets, consistent with a diversification channel through which financial globalization mitigates income inequality. Alternative mechanisms fail to explain these findings. Our results have important normative implications.

Keywords: Financial Globalization, Income Inequality, Delegated Portfolio Management, Mutual Funds

JEL Classification: D31, D63, G15, G23

Suggested Citation

Cheng, Si and Massa, Massimo and Zhang, Hong, Financial Globalization vs. Income Inequality: The Surprising Role of Delegated Portfolio Flows in Taming the Top 1% (May 1, 2021). PBCSF-NIFR Research Paper, Available at SSRN: https://ssrn.com/abstract=3668048 or http://dx.doi.org/10.2139/ssrn.3668048

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://www.hongzhang.info

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