Abstract
We hypothesize that poor country-level governance, which makes public information less reliable, induces fund managers to increase their use of semi-public information. Utilizing data from international mutual funds and stocks over the 2000-2009 period, we find that semi-public information-related stock rebalancing can be five times higher in countries with the worst quality of governance than in countries with the best. The use of semi-public information increases price informativeness but also increases information asymmetry and reduces stock liquidity. It also intensifies the price impact and liquidity crunch during the recent global financial crisis.
| Original language | English |
|---|---|
| Pages (from-to) | 3343-3387 |
| Number of pages | 45 |
| Journal | The Review of Financial Studies |
| Volume | 27 |
| Issue number | 11 |
| DOIs | |
| Publication status | Published - 2014 |
Bibliographical note
A post of the paper is featured at Harvard Law School Forum on Corporate Governance and Financial Regulation on Monday October 29, 2014, (http://blogs.law.harvard.edu/corpgov/2014/10/29/mutual-funds-and-information-diffusion-the-role-of-country-level-governance/)Research programs
- ESE - F&A