Working Paper: CEPR ID: DP10465
Authors: Massimo Massa; David Schumacher
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.
Keywords: international markets; market integration; mutual funds; outsourcing
JEL Codes: G15; G23; G30; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Outsourcing decisions (L24) | Performance improvements for funds (G23) |
| Language proximity (Y80) | Outsourcing probability (L24) |
| Expropriation risk (H13) | Outsourcing probability (L24) |
| International distribution reach (D39) | Outsourcing likelihood (L24) |
| Outsourcing decisions (L24) | Market integration (F15) |
| Expected fund performance differences (G23) | Outsourcing decisions (L24) |