Information Immobility, Industry Concentration, and Institutional Investors’ Performance

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