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Information Barriers in Global Markets: Evidence from International Subcontracting Relationships

  • Massimo Massa (a1) and David Schumacher (a2)


We study the link between information barriers in global markets and the organizational form of asset management. Fund families outsource funds in which they are at an informational disadvantage to generate performance. Using a structural model of self-selection, we endogenize the outsourcing decision and estimate positive gains from outsourcing of 4–14 basis points per month, thereby reconciling underperformance of outsourced funds with performance maximization by fund families. The gains from outsourcing provide a novel proxy for the information barriers that segment global financial markets: The more segmented the underlying markets where the funds invest, the larger the gains from outsourcing.


Corresponding author

Schumacher (corresponding author),


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We thank Viral Acharya, Santiago Bazdresch, Joe Chen (the referee), Jennifer Conrad (the editor), Miguel Ferreira, Pierre Hillion, Soeren Hvidkjaer, Fabian Irek, Andrew Karolyi, Pedro Matos, Michael Melvin, Jonathan Reuter, Sergei Sarkissian, Daniel Schmidt, Laura Veldkamp, and Yan Wang as well as seminar participants at INSEAD, IFABS 2011, the third Luxembourg Asset Management Summit, the IF2015 Annual Conference in International Finance, and the 2015 EFA annual meetings for helpful comments. We thank Judith Kashul for editorial help with the final draft. We are grateful for research support from the Social Sciences and Humanities Research Council of Canada (SSHRC). Schumacher further acknowledges support from the Institute of Financial Mathematics of Montreal (IFM2) and the Fonds de Recherche du Québec (FRQSC). Some results presented here were previously circulated in drafts called “Happy Loser: Subcontracting in International Asset Management” or “Subcontracting in International Asset Management: New Evidence on Market Integration.”



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Information Barriers in Global Markets: Evidence from International Subcontracting Relationships

  • Massimo Massa (a1) and David Schumacher (a2)


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