Information immobility,industry concentration,and institutional investors’ performance |
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Authors: | Mark Fedenia Sherrill Shafer Hilla Skiba |
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Affiliation: | 1. School of Business, University of Wisconsin – Madison, United States;2. College of Business, University of Wyoming, United States;3. Centre for Applied Macroeconomic Analysis (CAMA), Australian National University, Australia |
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Abstract: | 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. |
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Keywords: | G11 G15 G23 Z10 |
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