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What determines mutual fund trading in foreign stocks?

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  • Chan, Kalok
  • Covrig, Vicentiu

Abstract

We examine the portfolio rebalancing, measured by the equity churn rate, of mutual funds from 29 countries based on annual stockholdings over the 1999–2006 period. We find that funds more often trade the stocks of companies located in countries with higher degree of information asymmetry and are less familiar to fund managers, after we control for the effects of stock market development and investor protection. Consistent with the behavioral bias, fund managers more often rebalance stocks in foreign markets that perform well. This bias is exacerbated when fund managers are less familiar with and less informed about those markets.

Suggested Citation

  • Chan, Kalok & Covrig, Vicentiu, 2012. "What determines mutual fund trading in foreign stocks?," Journal of International Money and Finance, Elsevier, vol. 31(4), pages 793-817.
  • Handle: RePEc:eee:jimfin:v:31:y:2012:i:4:p:793-817
    DOI: 10.1016/j.jimonfin.2012.01.003
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    Cited by:

    1. Beracha, Eli & Fedenia, Mark & Skiba, Hilla, 2014. "Culture's impact on institutional investors' trading frequency," International Review of Financial Analysis, Elsevier, vol. 31(C), pages 34-47.

    More about this item

    Keywords

    Churn rate; Turnover; Mutual funds; Trading; Information disclosure; Familiarity;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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