Mutual fund managers stock preferences in Latin America

Abstract

In this paper, we observe the preferential characteristics of mutual fund managers when investing in Latin America. The main objective was checking the hypothesis that foreign managers prefer companies with characteristics that amplify its visibility, in other words, that reduce information asymmetry, a possible explanation for the existence of home bias. For this purpose, we observe mutual fund positions based on shareholders list of the companies listed at the stock exchanges of the countries of the sample in three different periods (June 2008, 2009 and 2010). Our findings go along with the hypothesis of home bias. Relevant variables of this literature that reinforces international exposure - i.e. international listing (ADRs), analyst coverage and exporting - were significant. Additionally, our findings suggest that international listing (ADRs) plays an important role in foreign mutual fund managers' decisions for Latin America, most due its characteristics (i.e. liquidity and market size). The study also revealed the preferences of domestic fund managers located in Latin America and found evidence that these managers behave differently from foreign mutual fund managers, as they expand their selection towards a market portfolio and do not focus on stocks with visibility characteristics. (C) 2012 Elsevier Inc. All rights reserved.