International diversification at home and abroad

Fang Cai and Francis Warnock
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Fang Cai: https://www.federalreserve.gov/econres/fang-cai.htm

No 793, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We analyze foreigners' and domestic institutional investors' holdings of U.S. equities and find common preferences for large firms and firms that are diversified internationally. The domestic preference for internationally diversified firms implies that investors might obtain substantial international diversification by investing at home. Using an international factor model, we show that exposure to foreign equity markets is indeed greater for domestic firms that are more diversified internationally, suggesting that at least some of the home-grown foreign exposure translates into international diversification benefits. After accounting for home-grown foreign exposure, the share of `foreign' equities in U.S. portfolios doubles to 24 percent, greatly reducing the observed home bias.

Keywords: Investments; Foreign (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-rmg
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: International Diversification at Home and Abroad (2006)
Working Paper: International diversification at home and abroad (2005)
Working Paper: International Diversification at Home and Abroad (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:793

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