Portfolio concentration and performance of institutional investors worldwide

Using data on security holdings for 10,771 institutional investors from 72 countries, we test whether concentrated investment strategies result in excess risk-adjusted returns. We examine several measures of portfolio concentration with respect to countries and industries and find that portfolio concentration is directly related to risk-adjusted returns for institutional investors worldwide. Results suggest, in contrast to traditional asset pricing theory and in support of information advantage theory, that concentrated investment strategies in international markets can be optimal.     

Information immobility,industry concentration,and institutional investors’ performance

This paper examines foreign institutional investors’ portfolio allocation and performance in US securities. We test how information immobility, proxied by information barriers between the investors’ home markets and the US, influences portfolio strategies. Consistent with theoretical predictions, foreign institutional investors’ total investment in the US 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 US institutional investors. Concentration especially helps institutional investors with the easiest access to information.     

Cross-holdings: estimation issues, biases, and distortions

Cross-bolding occurs when listed corporations own securitiesissued by other corporations. We analyze the effect of cross-holdingson market capitalization and return measures as well as implicationsfor econometric testing of asset pricing theories. We show thatcross-holdings generally distort standard market return andrisk measures. The magnitudes of such distortions are calculatedfor simulated economies by using a variety of crossholding patterns.In addition, cross-holdings are shown to induce non-stationarityin the covariance matrix of security returns. We examine theeffect of this nonstationarity for estimating efficient frontiersand factor structures. We also discuss the implications forrisk-return estimates in equilibrium asset pricing models.     

On the necessity of solving the free rider problem in takeover bids

Previous analysis of the free rider problem in takeover bids has concluded that complex takeover strategies, nonprice taking behavior, taxes, or exogenous exclusion of minority shareholders are necessary for the bidder to profit from a takeover bid. In contrast, in this study, costs of disclosure and the fungible nature of the bidder's information mitigates the detrimental consequences of the free rider problem. The absence of the free rider problem in takeover bids has important implications for optimal bidding strategies, the interpretation of mechanisms posed as solutions to the free rider problem, and the analysis of regulation of takeover activity.