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Information immobility, industry concentration, and institutional investors' performance

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  • Mark Fedenia
  • Sherrill Shaffer
  • Hilla Skiba

Abstract

This paper examines foreign institutional investors’ portfolio allocation and performance in US securities. We test how information immobility, proxied by cultural and geographical distance 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.

Suggested Citation

  • Mark Fedenia & Sherrill Shaffer & Hilla Skiba, 2012. "Information immobility, industry concentration, and institutional investors' performance," CAMA Working Papers 2012-24, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2012-24
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2021-06/24_fedenia_shaffer_skiba_2012.pdf
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    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • Z10 - Other Special Topics - - Cultural Economics - - - General

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