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Discussion Paper Details

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

Author(s): Si Cheng, Massimo Massa and Hong Zhang

Publication Date: April 2017

Keyword(s): Cross-border capital flows, Globalization of finance, Market Efficiency and Mutual funds

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Cheng, S, Massa, M and Zhang, H. 2017. 'Inefficient Globalization of Finance: Evidence from Marketing-Oriented Overseas Expansions of Low-Skilled Mutual Fund Families'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11990