Working Paper: CEPR ID: DP10472
Authors: Massimo Massa; Chengwei Wang; Hong Zhang; Jian Zhang
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.
Keywords: International investments; Mutual funds; Performance; Trust
JEL Codes: G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trust (G21) | active share of domestic mutual funds (G23) |
| active share of domestic mutual funds (G23) | fund performance (G14) |
| trust in investment country (F21) | active share of domestic mutual funds (G23) |
| trust-related active share (G34) | rolling alpha (C69) |