Information Immobility, Industry Concentration, and Institutional Investors’ Performance
49 Pages Posted: 1 Oct 2011 Last revised: 11 Mar 2012
Date Written: September 16, 2011
This paper examines institutions’ portfolio allocation and performance in US securities. We test how information immobility, proxied by market correlation and cultural and geographical distance between the investors’ home markets and the US, influences portfolio strategies. Consistent with theoretical predictions, foreign institutions’ total investment in the US is negatively related to information immobility. In addition, information immobility is a significant driver of portfolio under-diversification, measured as industry concentration of portfolios. Similar to a sample of US institutions, industry concentrated foreign institutions outperform industry diversified foreign institutions in US securities. Concentration especially helps institutions with the most difficult access to information.
Keywords: International Diversification, Portfolio performance, Industry concentration
JEL Classification: G11, G15, G23, Z10
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