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Do domestic and foreign fund managers have similar preferences for stock characteristics? A cross-country analysis

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Author Info

  • Vicentiu Covrig

    (California State University at Northridge, College of Business and Economics, Northridge, CA, USA)

  • Sie Ting Lau

    (Nanyang Technological University, Nanyang Business School, Singapore)

  • Lilian Ng

    (University of Wisconsin at Milwaukee, School of Business Administration, Milwaukee, WI, USA)

Abstract

Using a new unique data set on mutual fund stockholdings, we identify several interesting similarities and differences in the stock preferences of domestic and foreign fund managers from 11 developed countries. Results show that both groups of managers prefer stocks with high return on equity, large turnover, and low return variability, and that they also exhibit differential investment behavior. Domestic managers also favor firms that pay large dividends, have low financial distress and high growth potential, whereas foreign managers prefer to invest in corporations that are globally well known. The demand for globally visible stocks by foreign managers is especially strong when their fund mandate is to diversify globally or across regions, and is weakened when their stock holdings are concentrated mainly in a specific local market. The results also show no difference in the stock preferences of American-, European- and Asian-based funds. In general, our overall evidence suggests that the differential mandates of fund managers and hence the geographic allocations of their fund investments influence their stock preferences, but not the geographic location of the managers. Journal of International Business Studies (2006) 37, 407–429. doi:10.1057/palgrave.jibs.8400195

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal Journal of International Business Studies.

Volume (Year): 37 (2006)
Issue (Month): 3 (May)
Pages: 407-429

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Handle: RePEc:pal:jintbs:v:37:y:2006:i:3:p:407-429

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Cited by:
  1. Ødegaard, Bernt Arne, 2009. "Who moves stock prices? Monthly evidence," UiS Working Papers in Economics and Finance 2009/4, University of Stavanger.
  2. DeFond, Mark & Hu, Xuesong & Hung, Mingyi & Li, Siqi, 2011. "The impact of mandatory IFRS adoption on foreign mutual fund ownership: The role of comparability," Journal of Accounting and Economics, Elsevier, vol. 51(3), pages 240-258, April.
  3. Mark Fedenia & Sherrill Shaffer & Hilla Skiba, 2012. "Information immobility, industry concentration, and institutional investors’ performance," CAMA Working Papers 2012-24, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Ferreira, Miguel A. & Matos, Pedro, 2008. "The colors of investors' money: The role of institutional investors around the world," Journal of Financial Economics, Elsevier, vol. 88(3), pages 499-533, June.
  5. Fedenia, Mark & Shafer, Sherrill & Skiba, Hilla, 2013. "Information immobility, industry concentration, and institutional investors’ performance," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 2140-2159.
  6. Kalok Chan & Vicentiu Covrig & Lilian Ng, 2005. "What Determines the Domestic Bias and Foreign Bias? Evidence from Mutual Fund Equity Allocations Worldwide," Journal of Finance, American Finance Association, vol. 60(3), pages 1495-1534, 06.
  7. Bae, Kee-Hong & Goyal, Vidhan K., 2010. "Equity market liberalization and corporate governance," Journal of Corporate Finance, Elsevier, vol. 16(5), pages 609-621, December.
  8. Hamberg, Mattias & Mavruk, Taylan & Sjögren, Stefan, 2013. "Investment allocation decisions, home bias and the mandatory IFRS adoption," Journal of International Money and Finance, Elsevier, vol. 36(C), pages 107-130.
  9. Ng, Lilian & Wu, Fei, 2006. "Revealed stock preferences of individual investors: Evidence from Chinese equity markets," Pacific-Basin Finance Journal, Elsevier, vol. 14(2), pages 175-192, April.
  10. Hung, Weifeng, 2014. "Institutional trading and attention bias," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 71-91.

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