Mutual Funds and Information Diffusion: The Role of Country-Level Governance

Chunmei Lin, Massimo Massa and Hong Zhang
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Chunmei Lin: Erasmus University Rotterdam, the Netherlands
Massimo Massa: INSEAD, France
Hong Zhang: INSEAD, France, Tsinghua University, Singapore

Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We hypothesize that poor country-level governance, which makes public information less reliable, induces fund managers to increase their use of semi-public information. Utilizing data from international mutual funds and stocks over the 2000-2009 period, we find that semi-public information-related stock rebalancing can be five times higher in countries with the worst quality of governance than in countries with the best. The use of semi-public information increases price informativeness but also increases information asymmetry and reduces stock liquidity. It also intensifies the price impact and liquidity crunch during the recent global financial crisis. This paper led to a publication in the Review of Financial Studies , 2014, 27,(11), 3343-3387.

Keywords: Mutual Funds; Information Diffusion; Country-Level Governance; Semi-Public Information; Liquidity (search for similar items in EconPapers)
JEL-codes: G15 (search for similar items in EconPapers)
Date: 2014-07-01
New Economics Papers: this item is included in nep-sea
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Citations: View citations in EconPapers (22)

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