Inefficient Globalization of Finance: Evidence from Marketing-Oriented Overseas Expansions of Low-Skilled Mutual Fund Families
Massimo Massa and
No 11990, CEPR Discussion Papers from C.E.P.R. Discussion Papers
We study how the globalization of finance may unintendedly reduce market efficiency through low-skilled financial institutions. Particularly, it may allow these companies to achieve product differentiation by launching new products for â€œmarketingâ€ purposes rather than for the goal of improving investor welfare or market efficiency. Using a complete sample of global mutual funds, we find that low-skill fund companies are more likely to launch new funds that track less-explored foreign equity market indices. However, these new funds typically deliver lower returns and lower diversification benefits. The associated cross-border capital flows reduce price efficiency and liquidity.
Keywords: Globalization of finance; Cross-border capital flows; Mutual funds; Market efficiency (search for similar items in EconPapers)
JEL-codes: F36 G15 G23 (search for similar items in EconPapers)
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