Clark, Gordon L. and Monk, Ashby H. B., The Production of Investment Returns in Spatially Extensive Financial Markets (September 16, 2014). Available at SSRN: http://ssrn.com/abstract=2501912

“Investment returns are produced by combining financial assets with human capital, the decision-making protocols of investment institutions, and the electronic infrastructure which supports the flow of information about investment opportunities. At the centre of the production process stand senior managers; their power and authority in the production process is fundamental to the performance of investment institutions. This paper provides a model of the production of investment returns in financial centres and spatially extensive financial markets. We begin with Ronald Coase’s theory of the firm, but go beyond models of the firm that represent commodity producing industries. Having substantiated the model of investment management, it is applied to institutions located that seek investment returns in geographically extensive financial markets. Operating in financial markets at a distance from home jurisdictions is an increasingly important aspect of investment management. Given recent turmoil in the financial markets of the global economy, financial institutions have sought higher rates of return from markets in which they have little direct experience. At issue is how different types of financial institutions (large and small, growing and declining) produce investment returns in this new environment.”