Abstract
This paper is about evaluating and comparing the portfolio preferences of domestic and foreign mutual funds in developed and emerging markets over the period 1998-2007. We find that foreign and domestic mutual funds have some different preferences toward firm characteristics and firm’s information enviroments, and economic development affects the preferences for both types of funds. A country’s characteristics and institutions also influence mutual fund investment decisions when fund managers from their portfolio holdings. Results further show that foreign and domestic mutual funds play a monitoring role in their portfolio firms, but foreign mutual funds cannot monitor firms effectively in emerging markets.
Highlights
Introduction to Literature on OwnershipCapital markets have become even more integrated and globalized over the last two decades as revealed by the mutual dependence of markets during and after the global financial crisis
Previous studies in general focused on one developed market or some emerging markets as a group to reveal portfolio preferences of foreign investors; some studies focused on all national markets
This study focuses on one type of institutional investor namely mutual funds to investigate whether foreign investors have different preferences for firms in developed and emerging markets
Summary
Capital markets have become even more integrated and globalized over the last two decades as revealed by the mutual dependence of markets during and after the global financial crisis. This study focuses on one type of institutional investor namely mutual funds to investigate whether foreign investors have different preferences for firms in developed and emerging markets It could document whether factors in previous studies show different effects on foreign and domestic ownership in developed and emerging markets. Higher GDP and larger size of stock market have a negative effect on foreign ownership These results are consistent with previous literature that international investors prefer small markets to diversify their portfolio holdings (Ferreira and Matos, 2008). With regard to firm characteristics, existing results show that foreign mutual funds in general prefer firms with large size, lower dividend yields, higher operating performance, more cash holding, and lower closely-held ownership They prefer younger firms, growth stocks, member firms of MSCI index, and firms with American Depositary Receipt (ADR) issuance.
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