Do foreign investors have an edge? : a study of Norwegian equity mutual funds
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- Master Thesis 
This paper examines the performance and investor behavior of Norwegian equity mutual funds in the time periods 1990-2012 and 2006-2012, respectively. The behavioral part try to reveal differences between local (Norwegian) and foreign (non-Norwegian) investors in light of home bias. We find that 94 per cent of the mutual funds are not expected to generate a significant positive alpha, excluding transaction costs. After deducting returns from capital assets, illustrations find that foreigners have more volatile cash flows than locals. We test if these differences are due to irrational biases, different risk profiles or information advantages. We provide significant evidence that three month average historic returns can predict larger changes in foreign capital assets than in local, which indicates that foreigners chase performance more than locals. Furthermore, we find that changes in foreign capital assets predict three- and six month average return better than locals, hence we can exclude the irrational bias story. Finally, after controlling for risk, we find significant positive alpha for foreigners and no significant results for locals, which exclude the different risk profile story. Overall, this suggests that foreign investors generate positive return because they have an information advantage.