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Fund manager skill in an era of globalization: Offshore concentration and fund performance

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  • Bai, John Jianqiu
  • Tang, Yuehua
  • Wan, Chi
  • Yüksel, H. Zafer

Abstract

We study how mutual fund managers gain an edge in selecting stocks in an era of globalization. We use textual analysis to construct a measure that captures a mutual fund's offshore exposure concentration through holding US multinational firms. We find that funds with a higher offshore concentration index (OCI) perform significantly better, with the difference in four-factor alpha between the top and bottom deciles amounting to 2.95% per annum. Fund managers’ overweighting of firms with operations in certain countries can be partly attributed to their foreign ethnicity. High OCI fund managers have an information advantage regarding firms’ fundamentals, such as earnings.

Suggested Citation

  • Bai, John Jianqiu & Tang, Yuehua & Wan, Chi & Yüksel, H. Zafer, 2022. "Fund manager skill in an era of globalization: Offshore concentration and fund performance," Journal of Financial Economics, Elsevier, vol. 145(2), pages 18-40.
    • Handle: RePEc:eee:jfinec:v:145:y:2022:i:2:p:18-40
    DOI: 10.1016/j.jfineco.2021.07.012
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    More about this item

    Keywords

    Mutual funds; Manager skill; Offshore concentration; Fund performance; Multinational firms; Textual analysis;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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