Indian institutional investor's portfolio concentration decision: skill and performance

Abstract

Purpose

This study examined Indian institutional investors' holding data to understand their investment strategy (Portfolio Concentration/Diversification) and explored whether their skills were associated with their portfolio strategy and performance. The study introduced a new proxy to identify skilled investors by forecasting abnormal returns. Moreover, the study also highlighted where skilled Indian investors put their money for long-term investment.

Design/methodology/approach

This study measures portfolio concentration based on the number of holdings, the Hirschman–Herfindahl index (HHI) and benchmarks adjusted industry concentration. The study introduced a new proxy to identify skilled investors. We measured Investors' performance with the help of Carhart's four factors model and examined the relationship between variables through various regression models.

Findings

The study concluded a negative relationship between portfolio concentration and performance. However, skilled Indian investors get rewards from portfolio concentration decisions. It was found that skilled investors with few stocks and an industry concentration in their portfolio show a positive association between concentration and fund performance. Additionally, this study found Indian investors showing their faith in the financial sector for long-term investment.

Originality/value

This study examined Indian institutional investors' portfolio concentration strategy and introduced a new proxy to measure investors' skills.