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

62 Pages Posted: 31 Aug 2020

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 15, 2020

Abstract

We document a surprising finding that foreign capital inflows delegated through global mutual funds reduce the income of the top 1%. To rationalize this observation, we utilize a comprehensive database of worldwide ownership of both private and public firms for 2001-2013, which allows us to trace income inequality to its micro-foundations 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 for financial globalization to influence 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% (July 15, 2020). 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://eng.pbcsf.tsinghua.edu.cn/content/details167_7995_x.html

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