Abstract
We compare the performance of local versus foreign institutional investors using a comprehensive data set of equity holdings in 32 countries during the 2000-2010 period. We find that foreign institutions perform as well as local institutions on average, but only domestic institutions show a trading pattern consistent with an information advantage. Our results suggest a smart-money effect of local institutions in stocks subject to high information asymmetry, such as illiquid, low analyst coverage, or high insider ownership stocks. The local advantage is more pronounced outside the United States, in countries with poor investor protection or high levels of corruption, and in periods of market turmoil.
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