Information Immobility, Industry Concentration, and Institutional Investors’ Performance

CAMA Working Paper No. 24/2012

50 Pages Posted: 4 Jun 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: June 2012

Abstract

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

Suggested Citation

Fedenia, Mark A. and Shaffer, Sherrill and Skiba, Hilla, Information Immobility, Industry Concentration, and Institutional Investors’ Performance (June 2012). CAMA Working Paper No. 24/2012. Available at SSRN: https://ssrn.com/abstract=2077114 or http://dx.doi.org/10.2139/ssrn.2077114

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 (Contact Author)

University of Wyoming ( email )

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

Hilla Skiba

Colorado State University ( email )

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

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