The Performance of Local Versus Foreign Mutual Fund Managers

Abstract

In this paper we examine the performance of local US equity funds versus foreign UK funds also investing in the US equity market. Based on informational disadvantages one would expect the foreign funds to under-perform the local funds, especially in the research intensive small company market. After controlling for tax treatment, fund objectives, investment style and time-variation in betas, we do not find evidence for this.

In the small company segment we even find a slight out-performance for foreign funds compared to local funds. In addition to that we observe a home bias in the UK portfolios, which could not be explained by currency effects or other non-US equity holdings.

Keywords: Mutual Funds, Home Bias, Information asymmetry, Performance evaluation

JEL Classification: G12, G20, G23