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Information immobility, industry concentration, and institutional investors’ performance

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  • Fedenia, Mark
  • Shafer, Sherrill
  • Skiba, Hilla
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    Abstract

    This paper examines foreign institutional investors’ portfolio allocation and performance in US securities. We test how information immobility, proxied by information barriers between the investors’ home markets and the US, influences portfolio strategies. Consistent with theoretical predictions, foreign institutional investors’ total investment in the US is negatively related to information immobility. Similarly, information immobility is a significant driver of portfolio under-diversification across industries. Industry concentration has declined over time, consistent with declining search costs. Industry-concentrated portfolios outperform more diversified portfolios for both foreign and US institutional investors. Concentration especially helps institutional investors with the easiest access to information.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 37 (2013)
    Issue (Month): 6 ()
    Pages: 2140-2159

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    Handle: RePEc:eee:jbfina:v:37:y:2013:i:6:p:2140-2159

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: International diversification; Portfolio performance; Industry concentration; Culture; Home bias;

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