Discussion Paper Details

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Title: Investing in Low-Trust Countries: Trust in the Global Mutual Fund Industry

Author(s): Massimo Massa, Chengwei Wang, Hong Zhang and Jian Zhang

Publication Date: March 2015

Keyword(s): International Investments, Mutual Funds, Performance and Trust

Programme Area(s): Financial Economics

Abstract: We hypothesize that trust plays an important role in affecting the activeness and effectiveness of the global mutual fund industry. Empirically, trust is positively associated with the activeness of domestic funds, whereas for internationals mutual funds conducting cross-border investments activeness is bounded by the trust of low-trust countries. In both cases, trust-related active share delivers superior performance, whereas the economic magnitude is larger for cross-border investments (around 2% per year). Our results suggest that trust, including both trust in managers and trust in the market, may significantly affect the development of financial intermediaries and the efficiency of global investment.

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Bibliographic Reference

Massa, M, Wang, C, Zhang, H and Zhang, J. 2015. 'Investing in Low-Trust Countries: Trust in the Global Mutual Fund Industry'. London, Centre for Economic Policy Research.