Portfolio Concentration and Performance of Institutional Investors Worldwide
نویسنده
چکیده
Using data on security holdings of 10,771 institutional investors from 72 different countries, we test whether concentrated investment strategies result in superior abnormal returns to institutional investors. We examine three measures of portfolio concentration: home country, foreign country, and industry concentration and show that portfolio concentration leads to higher abnormal returns of institutional investors worldwide. The study shows that, in contrast to the traditional asset pricing theory, concentrated investment strategies in international markets can be underdiversified but optimal. Results suggest that investors rationally choose to overweight certain markets and industries because of information advantage from specialization and economies of scale.
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