Information Immobility, Industry Concentration, and Institutional Investors’ Performance
CAMA Working Paper No. 24/2012
50 Pages Posted: 4 Jun 2012
Date Written: June 2012
This paper examines foreign institutional investors’ portfolio allocation and performance in U.S. securities. We test how information immobility, proxied by cultural and geographical distance between the investors’ home markets and the U.S., influences portfolio strategies. Consistent with theoretical predictions, foreign institutional investors’ total investment in the U.S. 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 U.S. institutional investors. Concentration especially helps institutional investors with the easiest access to information.
Keywords: International Diversification, Portifolio performance, Industry concentration
JEL Classification: G11, G15, G23, Z10
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