Foreignness and the Incentive to Generate Alpha: Evidence from Offshore Cross-Border Mutual Funds

60 Pages Posted: 12 Jul 2024

Date Written: July 09, 2024

Abstract

We analyze Europe equity funds domiciled offshore in Luxembourg/Ireland (top 2/3 domiciles in the world by total assets) and sold across the world, relative to their onshore counterparts. These offshore cross-border funds are more actively managed and have a markedly stronger flow-performance sensitivity. This suggests a more sophisticated and performance-sensitive clientele less concerned with brand foreignness. Consistent with a greater incentive to generate alpha, such funds not only outperform, but the returns to active portfolio management are also more than twice as high. Finally, we rule out an alternative explanation based on a more diversified shareholder base.

Keywords: Mutual Funds, Offshore, Familiarity, Performance, Active Fund Management, Flow-Performance Sensitivity, Competition

JEL Classification: G11, G12, G14, G15, G23

Suggested Citation

Broman, Markus S., Foreignness and the Incentive to Generate Alpha: Evidence from Offshore Cross-Border Mutual Funds (July 09, 2024). Available at SSRN: https://ssrn.com/abstract=4889900 or http://dx.doi.org/10.2139/ssrn.4889900

Markus S. Broman (Contact Author)

Ohio University ( email )

College of Business, Finance Department
Copeland Business Annex 207
Athens, OH 45701-2979
United States

HOME PAGE: http://www.markusbroman.com

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
14
Abstract Views
77
PlumX Metrics