Working Paper: NBER ID: w27648
Authors: Irem Demirci; Miguel A. Ferreira; Pedro Matos; Clemens Sialm
Abstract: We show that mutual funds worldwide provide substantial international exposure through their domestic holdings of multinationals. An average domestic fund's international exposure increases by 32 percentage points when we consider international corporate diversification. We find that funds with higher indirect international exposure perform better in both the cross section and the time series. This outperformance is more pronounced among small fund families, and funds that invest in small stocks, growth stocks, and less developed capital markets. Our findings support the hypothesis that international diversification from multinationals reduces the transaction and information costs of investing abroad and captures fund manager skill.
Keywords: Mutual Funds; International Diversification; Multinationals; Home Bias
JEL Codes: F23; G11; G15; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| indirect international exposure (F29) | reduce transaction and information costs (D23) |
| direct international exposure (F30) | fund performance (G14) |
| fund size and stock type (G23) | fund performance (G14) |
| indirect international exposure (F29) | fund performance (G14) |
| one standard deviation increase in indirect international exposure (F29) | fund performance (G14) |
| one within-fund standard deviation increase in indirect international exposure (F29) | fund performance (G14) |