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Information immobility, industry concentration, and institutional investor's performance

Vol: 
CAMA Working Paper 24/2015
Author name: 
Mark Fedenia
Sherrill Shaffer
Hilla Skiba
Year: 
2012
Month: 
June
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.

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