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How Global Is Your Mutual Fund? International Diversification from Multinationals

Author

Listed:
  • 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. The international exposure of domestic funds increases, on average, 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 effect is primarily driven by the fund managers’ ability to invest in multinationals, rather than the performance of those multinationals. Our findings support the hypothesis that international diversification from multinationals reduces the transaction and information costs of investing abroad.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Irem Demirci & Miguel A Ferreira & Pedro Matos & Clemens Sialm, 2022. "How Global Is Your Mutual Fund? International Diversification from Multinationals," The Review of Financial Studies, Society for Financial Studies, vol. 35(7), pages 3337-3372.
    • Handle: RePEc:oup:rfinst:v:35:y:2022:i:7:p:3337-3372.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhab103
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    Cited by:

    1. Kwon, Taek Ho & Bae, Sung C. & Liu, Chenyang, 2025. "Diversification and firm risk: New evidence on exchange rate exposure," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 101(C).
    2. Chen, Yihao & Miguel, Antonio F. & Liu, Xiayue, 2021. "Does mutual fund family size matter? International evidence," Journal of Multinational Financial Management, Elsevier, vol. 62(C).
    3. Lambert, Claudia & Molestina Vivar, Luis & Wedow, Michael, 2024. "Is home bias biased? New evidence from the investment fund sector," Working Paper Series 2924, European Central Bank.
    4. Broman, Markus & Fulkerson, Jon, 2025. "Variation in the value of active share across regions of investments: Evidence from global equity funds," Journal of Banking & Finance, Elsevier, vol. 180(C).
    5. Wang, Luqi & Urga, Giovanni, 2025. "Optimal N-state endogenous Markov-switching model for currency liquidity timing," Journal of Economic Dynamics and Control, Elsevier, vol. 177(C).
    6. Miguel, António F. & Chen, Yihao, 2021. "Do machines beat humans? Evidence from mutual fund performance persistence," International Review of Financial Analysis, Elsevier, vol. 78(C).
    7. Likitwongkajon, Napaporn & Vithessonthi, Chaiporn, 2024. "Foreign investments and firm risk: Evidence from Germany," Global Finance Journal, Elsevier, vol. 59(C).
    8. Fleta-Asín, Jorge & Muñoz, Fernando, 2023. "Institutional distance and US-based international mutual funds’ financial performance," Finance Research Letters, Elsevier, vol. 51(C).
    9. Vidal, Marta & Vidal-García, Javier & Bekiros, Stelios & Trinidad-Segovia, Juan E., 2025. "Global mutual fund flows," International Review of Financial Analysis, Elsevier, vol. 103(C).
    10. Kong, Dongmin & Zhao, Zhao, 2024. "Political investing of mutual funds," International Review of Financial Analysis, Elsevier, vol. 95(PB).
    11. Hoang, Lai T. & Tan, Eric K.M. & Yang, Joey W., 2024. "The investment behavior of China-connected mutual funds in the pandemic: Information advantage through operational link," International Review of Financial Analysis, Elsevier, vol. 95(PA).
    12. Miguel, António F. & Chen, Yihao, 2025. "How active is your (nominally) actively managed quantitative fund?," International Review of Financial Analysis, Elsevier, vol. 103(C).
    13. Chadha, Pearlean & Berrill, Jenny, 2024. "International operations and international influences – Investing in UK firms," International Review of Economics & Finance, Elsevier, vol. 96(PB).
    14. Ørpetveit, Andreas, 2025. "Competition and incentives in the mutual fund industry: Evidence from product development strategies," Discussion Papers 2025/13, Norwegian School of Economics, Department of Business and Management Science.
    15. Matteo Crosignani & Lina Han & Marco Macchiavelli, 2025. "Navigating Geoeconomic Risk: Evidence from U.S. Mutual Funds," Staff Reports 1172, Federal Reserve Bank of New York.

    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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