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

• Main Authors: MASSA, Massimo, WANG, Chengwei, ZHANG, Hong, ZHANG, Jian
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2022
• Subjects: Trust; International Investments; Mutual Funds; Performance; Finance; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/7048; https://ink.library.smu.edu.sg/context/lkcsb_research/article/8047/viewcontent/2.4.Investing_in_Low_trust_Countries_Trust_in_the_Global_Mutual_Fund_Industry.pdf
• Institution: Singapore Management University

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.