Information asymmetries and institutional investor mandates [electronic resource] / Tatiana Didier
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TextPublication details: Washington, D.C., The World Bank, 2011Description: 1 online resource (59 p.)Subject(s): Debt Markets | Emerging Markets | Finance and Financial Sector Development | International Financial Markets | Investment and Investment Climate | Microfinance | Mutual Fund | Mutual Funds | Portfolio ChoiceAdditional physical formats: Didier, Tatiana.: Information asymmetries and institutional investor mandates.Online resources: Click here to access online Abstract: The preference among foreign institutional investors for large firms is widely documented. This paper deepens our understanding of international investments by providing evidence that foreign institutional investors with broader investment scopes prefer to invest in firms where they are less prone to information disadvantages than more specialized ones. In other words, there is heterogeneity in how information asymmetries affect investors' portfolio choices. Theoretically, a model with costly information and short-selling constraints shows that the broader the investor's mandate, the smaller the incentives to gather and process costly information. Empirically, an analysis of the mutual fund industry in the United States supports this hypothesis.
The preference among foreign institutional investors for large firms is widely documented. This paper deepens our understanding of international investments by providing evidence that foreign institutional investors with broader investment scopes prefer to invest in firms where they are less prone to information disadvantages than more specialized ones. In other words, there is heterogeneity in how information asymmetries affect investors' portfolio choices. Theoretically, a model with costly information and short-selling constraints shows that the broader the investor's mandate, the smaller the incentives to gather and process costly information. Empirically, an analysis of the mutual fund industry in the United States supports this hypothesis.
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