Discussion Paper Details

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Title: Subcontracting in International Asset Management: New Evidence on Market Integration

Author(s): Massimo Massa and David Schumacher

Publication Date: March 2015

Keyword(s): International Markets, Market Integration, Mutual funds and Outsourcing

Programme Area(s): Financial Economics

Abstract: We study the decisions of international asset managers to outsource portfolio management of their funds and we link these decisions to market integration. Using a structural model of selfselection, we endogenize the decision to outsource in a comprehensive sample of international mutual funds and identify both performance and non-performance related determinants of outsourcing. Outsourcing fund management generates net positive gains to fund families of around 8-17 bp per month despite the ex-post underperformance of outsource funds relative to inhouse funds. Then, we establish that the performance improvements from outsourcing are directly related to segmentation in the underlying asset markets.

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Bibliographic Reference

Massa, M and Schumacher, D. 2015. 'Subcontracting in International Asset Management: New Evidence on Market Integration'. London, Centre for Economic Policy Research.