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Investing in Low-Trust Countries: On the Role of Social Trust in the Global Mutual Fund Industry

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  • Massa, Massimo
  • Wang, Chengwei
  • Zhang, Hong
  • Zhang, Jian

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.

Suggested Citation

  • Massa, Massimo & Wang, Chengwei & Zhang, Hong & Zhang, Jian, 2022. "Investing in Low-Trust Countries: On the Role of Social Trust in the Global Mutual Fund Industry," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 57(1), pages 240-290, February.
    • Handle: RePEc:cup:jfinqa:v:57:y:2022:i:1:p:240-290_8
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