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The weight of bad governance in foreign mutual funds

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  • Linus Wilson

Abstract

Empirical studies show that mutual funds are less likely to hold poorly governed foreign stocks. This theoretical model shows that foreign mutual fund managers will optimally lower their weight of badly governed stocks because they have higher costs of actively managing these holdings than their domestic rivals.

Suggested Citation

  • Linus Wilson, 2010. "The weight of bad governance in foreign mutual funds," Applied Economics Letters, Taylor & Francis Journals, vol. 17(12), pages 1189-1192.
    • Handle: RePEc:taf:apeclt:v:17:y:2010:i:12:p:1189-1192
    DOI: 10.1080/17446540902817635
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    References listed on IDEAS

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    1. Chevalier, Judith & Ellison, Glenn, 1997. "Risk Taking by Mutual Funds as a Response to Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1167-1200, December.
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    3. Bae, Kee-Hong & Stulz, René M. & Tan, Hongping, 2008. "Do local analysts know more? A cross-country study of the performance of local analysts and foreign analysts," Journal of Financial Economics, Elsevier, vol. 88(3), pages 581-606, June.
    4. Aggarwal, Reena & Klapper, Leora & Wysocki, Peter D., 2005. "Portfolio preferences of foreign institutional investors," Journal of Banking & Finance, Elsevier, vol. 29(12), pages 2919-2946, December.
    5. 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, June.
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