EconPapers    
Economics at your fingertips  
 

International equity portfolio diversification: a sectoral and security-by-security analysis

Pierre Bui Quang, Jonas Heipertz and Natacha Valla

No 2017-2, EconomiX Working Papers from University of Paris West - Nanterre la Defense, EconomiX

Abstract: International portfolio diversification has been shown to be subject to several puzzles, notably the home bias in equity investment, and the correlation bias. Taken together, those facts suggest that not only do investors tend to prefer domestic equity to foreign equity, but that, when they venture into cross-border investments, they do so in countries where stock prices are most correlated with home markets - contradicting the intuition that international investments are used to diversify portfolios more optimally. Our paper deals mainly with the correlation bias. It uses a dataset on French external financial portfolio positions produced by the Banque de France that allows a security-by-security analysis of international positions. We show that although insurance companies and investment funds are indeed more exposed to highly correlated markets, the way they arrange their portfolios at the security-level is consistent with the existence of a diversification motive.

Keywords: gross international investment positions; home bias; correlation puzzle; financial structure; macro-prudential regulation. (search for similar items in EconPapers)
JEL-codes: G11 G15 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://economix.fr/pdf/dt/2017/WP_EcoX_2017-02.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:drm:wpaper:2017-2

Access Statistics for this paper

More papers in EconomiX Working Papers from University of Paris West - Nanterre la Defense, EconomiX Contact information at EDIRC.
Series data maintained by Valerie Mignon ().

 
Page updated 2017-09-17
Handle: RePEc:drm:wpaper:2017-2