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The performance of active investment positions in foreign markets

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Abstract

We analyze whether cross-national distance between professional money managers and the positions they take in foreign markets affects investment performance. Out of four dimensions of cross-national distance (geography, culture, business climate, and industry), we find that only cultural distance inversely relates to portfolio performance. Investors earn higher returns in culturally similar foreign markets when market conditions in these countries are favorable. Our results show that the culture-based patterns in foreign portfolio allocations are associated with an information advantage and suggest that multinational corporate decisions influenced by culture increase firm value.

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Acknowledgments

We thank the editor (Lemma Senbet) and three anonymous referees for excellent comments that were instrumental in improving the paper. We also thank Alexandre Skiba and conference participants at meetings of the Southern Finance Association, Academic Research Colloquium for Financial Planning and Related Disciplines, Financial Management Association, Australasian Finance and Banking Conference, Asian Finance Association, European Financial Management Association, Eastern Finance Association, Paris Financial Management Conference, and seminar participants at Florida Atlantic University. We acknowledge financial support from Social Sciences and Humanities Research Council (SSHRC) Insight Development Grant and Brock University SSHRC Institutional Grant.

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Authors and Affiliations

  1. Wisconsin School of Business, University of Wisconsin-Madison, 975 University Avenue, Madison, WI, 53706, USA

    Mark Fedenia

  2. Department of Finance and Real Estate, Colorado State University, 333 Rockwell Hall, 1201 Campus Delivery, Fort Collins, CO, 80523, USA

    Hilla Skiba

  3. Goodman School of Business, Brock University, 1812 Sir Isaac Brock Way, St. Catharines, ON, L2S 3A1, Canada

    Tatyana Sokolyk

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  1. Mark Fedenia
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  2. Hilla Skiba
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Correspondence to Tatyana Sokolyk.

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Accepted by Lemma Senbet, Area Editor, 28 May 2022. This article has been with the authors for three revisions.

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Fedenia, M., Skiba, H. & Sokolyk, T. The performance of active investment positions in foreign markets. J Int Bus Stud 54, 285–305 (2023). https://doi.org/10.1057/s41267-022-00548-0

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