Journal
REVIEW OF FINANCIAL STUDIES
Volume 35, Issue 7, Pages 3337-3372Publisher
OXFORD UNIV PRESS INC
DOI: 10.1093/rfs/hhab103
Keywords
F23; G11; G15; G23
Categories
Funding
- Fundacao para a Ciencia e Tecnologia (FCT)
- Richard A. Mayo Center for Asset Management at the Darden School of Business
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Our study reveals that mutual funds worldwide gain substantial international exposure by holding domestic shares of multinationals, and funds with higher indirect international exposure tend to perform better. This positive effect is primarily driven by fund managers' ability to invest in multinationals, rather than the performance of those multinationals.
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.
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