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Portfolio Concentration and Performance of Institutional Investors Worldwide

Posted: 29 Sep 2015  

Nicole Y. Choi

University of Wyoming - Department of Economics and Finance

Mark Fedenia

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

Hilla Skiba

Colorado State University

Tatyana Sokolyk

Brock University - Department of Finance, Operations & Information Systems

Date Written: August 20, 2015

Abstract

Using data on security holdings of 10,771 institutional investors from 72 different countries, we test whether concentrated investment strategies result in excess risk-adjusted returns to institutional investors. We examine three measures of portfolio concentration: home country, foreign country, and industry concentration, and we find that the degree of portfolio concentration is associated with higher risk-adjusted returns of institutional investors worldwide. Results suggest that, in contrast to the traditional asset pricing theory, concentrated investment strategies in international markets can be underdiversified but optimal. Consistent with the information advantage theory, investors rationally choose to overweight certain markets and industries.

Keywords: international investments, institutional investors, information advantage, home bias, diversification, industry concentration

JEL Classification: F3, G1

Suggested Citation

Choi, Nicole Y. and Fedenia, Mark and Skiba, Hilla and Sokolyk, Tatyana, Portfolio Concentration and Performance of Institutional Investors Worldwide (August 20, 2015). Available at SSRN: https://ssrn.com/abstract=2666194

Nicole Choi

University of Wyoming - Department of Economics and Finance ( email )

P.O. Box 3985
Laramie, WY 82071-3985
United States

Mark 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)

Hilla Skiba (Contact Author)

Colorado State University ( email )

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

Tatyana Sokolyk

Brock University - Department of Finance, Operations & Information Systems ( email )

500 Glenridge Avenue
St. Catherines, Ontario L2S 3A1
Canada

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