Fund manager skill in an era of globalization: Offshore concentration and fund performance

Authors

John Jianqiu Bai, D'Amore-McKim School of Business
Yuehua Tang, Warrington College of Business
Chi Wan, University of Massachusetts Boston
H. Zafer Yüksel, University of Rhode Island

Document Type

Article

Date of Original Version

8-1-2022

Abstract

We study how mutual fund managers gain an edge in selecting stocks in an era of globalization. We use textual analysis to construct a measure that captures a mutual fund's offshore exposure concentration through holding US multinational firms. We find that funds with a higher offshore concentration index (OCI) perform significantly better, with the difference in four-factor alpha between the top and bottom deciles amounting to 2.95% per annum. Fund managers’ overweighting of firms with operations in certain countries can be partly attributed to their foreign ethnicity. High OCI fund managers have an information advantage regarding firms’ fundamentals, such as earnings.

Publication Title, e.g., Journal

Journal of Financial Economics

Volume

145

Issue

2

Citation/Publisher Attribution

Bai, John J., Yuehua Tang, Chi Wan, and H. Z. Yüksel. "Fund manager skill in an era of globalization: Offshore concentration and fund performance." Journal of Financial Economics 145, 2 (2022). doi: 10.1016/j.jfineco.2021.07.012.