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Information immobility, industry concentration, and institutional investors’ performance

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  • Mark Fedenia

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  • Sherrill Shaffer

    ()

  • Hilla Skiba

    ()

Abstract

This paper examines foreign institutional investors’ portfolio allocation and performance in US securities. We test how information immobility, proxied by cultural and geographical distance 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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File URL: http://cama.crawford.anu.edu.au/pdf/working-papers/2012/242012.pdf
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Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2012-24.

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Length: 50 pages
Date of creation: Jun 2012
Date of revision:
Handle: RePEc:een:camaaa:2012-24

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