The Production of Investment Returns in Spatially Extensive Financial Markets

Abstract

Investment returns are produced by combining financial assets with human capital, the decision-making protocols of investment houses, and the electronic infrastructure that supports the flow of information about investment. At the center of the production process stand senior managers; their power and authority in the production process is fundamental to the performance of investment organizations. This article provides a model of the production of investment returns in financial centers and spatially extensive financial markets. We begin with Coase's theory of the firm but go beyond models of the firm that represent commodity-producing industries. Having substantiated the model of investment management, it is applied to institutions that seek investment returns in geographically extensive financial markets. Operating in financial markets at a distance from home jurisdictions is an increasingly important aspect of investment management. Given recent turmoil in global financial markets, financial houses ha...