[Finance] Chengwei Wang - Investing in Low-Trust Countries: On the Role of Social Trust in the Global Mutual Fund Industry

Professor Chengwei Wang&#39; paper has just been accepted for publication in the Journal of Financial and Quantitative Analysis.<br /> <br /> <br /> <br /> Abstract&nbsp;<br /> <br /> 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, &ldquo;trust in the market&rdquo; and &ldquo;trust in managers&rdquo; 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.

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