Indian institutional investor's portfolio concentration decision: skill and performance
Journal of Advances in Management Research
ISSN: 0972-7981
Article publication date: 4 December 2023
Issue publication date: 5 January 2024
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.
Keywords
Acknowledgements
The authors thank participants of the India Finance Conference (IFC) 2022 held at IIM Calcutta between 19 and 21 Dec 2022 for their comments.
The authors thank Pranshu Tripathi (Research Scholar, DoMs, IIT Roorkee) for his advice, which improves this article's methodology and presentation.
The authors express their gratitude for the financial support received from the University Grants Commission (UGC), National Educational Testing Bureau (UGC Ref. No.: 1211/(NET- DEC 2018)).
Citation
Pandey, A. and Sharma, A.K. (2024), "Indian institutional investor's portfolio concentration decision: skill and performance", Journal of Advances in Management Research, Vol. 21 No. 1, pp. 66-95. https://doi.org/10.1108/JAMR-05-2023-0134
Publisher
:Emerald Publishing Limited
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