Investing in low-trust countries: On the role of social trust in the global mutual fund industry

Author

Massimo MASSA
Chengwei WANG
Hong ZHANG, Singapore Management UniversityFollow
Jian ZHANG

Publication Type

Journal Article

Version

submittedVersion

Publication Date

2-2022

Abstract

We hypothesize that social trust, in mitigating contracting incompleteness, may have an important effect on the activeness and effectiveness of delegated portfolio management. Using a complete sample of worldwide open-end mutual funds, we find that trust is positively associated with the activeness of funds and that trust-related active share delivers superior performance (e.g., approximately 2% per year for cross-border investments). Moreover, "trust in the market" and "trust in managers" play important yet different roles for different types of cross-border delegated portfolio management. Our results suggest that trust acts as a fundamental building block for delegated portfolio management.

Keywords

Trust, International Investments, Mutual Funds, Performance

Discipline

Finance | Finance and Financial Management

Research Areas

Finance

Publication

Journal of Financial and Quantitative Analysis

Volume

57

Issue

1

First Page

240

Last Page

290

ISSN

0022-1090

Identifier

10.1017/S0022109020000848

Publisher

Cambridge University Press

Citation

MASSA, Massimo; WANG, Chengwei; ZHANG, Hong; and ZHANG, Jian. Investing in low-trust countries: On the role of social trust in the global mutual fund industry. (2022). Journal of Financial and Quantitative Analysis. 57, (1), 240-290.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7048

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.

External URL

https://doi.org/10.1017/S0022109020000848