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Inefficient Globalization of Finance: Evidence from Marketing-Oriented Overseas Expansions of Low-Skilled Mutual Fund Families

Si Cheng, Massimo Massa and Hong Zhang

No 11990, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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 “marketing†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)
New Economics Papers: this item is included in nep-mkt
Date: 2017-04
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