The Added Bonus of Foreign Investments : Global Mutual Funds and Multinational Firm Returns

We find that active global mutual funds in the U.S. can use foreign information to select U.S. multinationals’ stocks. To invest internationally, these funds collect information from the foreign countries where they invest. Such foreign information helps funds invest in U.S. multinationals operating in those same foreign countries. Active global funds overweight and outperform on the selected multinationals’ stocks. A portfolio of these multinationals’ stocks yields abnormal returns of 12.8 percent per year. Active global funds trade these multinationals’ stocks by exploiting market-level foreign information and firm-specific events in foreign markets, such as cross-border mergers. The foreign information exploited by these funds is mainly from developed markets. And the outperformance is more pronounced when the selected multinationals’ stocks have lower foreign institutional ownership