Information Immobility, Industry Concentration, and Institutional Investors’ Performance

49 Pages Posted: 1 Oct 2011 Last revised: 11 Mar 2012

See all articles by Mark Fedenia

Mark Fedenia

University of Wisconsin - Madison - Department of Finance, Investment and Banking

Sherrill Shaffer

University of Wyoming

Hilla Skiba

Colorado State University

Multiple version iconThere are 2 versions of this paper

Date Written: September 16, 2011

Abstract

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

Suggested Citation

Fedenia, Mark A. and Shaffer, Sherrill and Skiba, Hilla, Information Immobility, Industry Concentration, and Institutional Investors’ Performance (September 16, 2011). Midwest Finance Association 2012 Annual Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1929189 or http://dx.doi.org/10.2139/ssrn.1929189

Mark A. Fedenia

University of Wisconsin - Madison - Department of Finance, Investment and Banking ( email )

975 University Avenue
Madison, WI 53706
United States
608-263-4502 (Phone)
608-265-3495 (Fax)

Sherrill Shaffer

University of Wyoming ( email )

P.O. Box 3985
Laramie, WY 82071-3985
United States
307-766-2173 (Phone)
307-766-5090 (Fax)

Hilla Skiba (Contact Author)

Colorado State University ( email )

Fort Collins, CO 80523
United States
9704912205 (Phone)
9704912205 (Fax)

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