International portfolio diversification is better than you think

Nicolas Coeurdacier and Stéphane Guibaud ()
Additional contact information
Stéphane Guibaud: LSE - London School of Economics and Political Science

SciencePo Working papers Main from HAL

Abstract: Using aggregate data on bilateral cross-border equity holdings, we investigate whether investors correctly hedge their over-exposure to domestic risk (the well-known equity home bias) by investing in foreign stock markets that have low correlation with their home stock market. To deal with the endogeneity of stock return correlations, we instrument current correlations with past correlations. Controlling for many determinants of international portfolios, we find that, all else equal, investors do tilt their foreign holdings towards countries, which offer better diversification opportunities. The diversification motive that we uncover is stronger for source countries exhibiting a higher level of home bias.

Keywords: International Portfolio Choice; Bilateral Equity Holdings; Portfolio Diversi¯ca- tion; International Stock Return Correlations; Financial Integration; Endogeneity Bias (search for similar items in EconPapers)
Date: 2011-03
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Published in Journal of International Money and Finance, 2011, 30 (2), pp.289 - 308. ⟨10.1016/j.jimonfin.2010.10.003⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: International portfolio diversification is better than you think (2011)
Working Paper: International portfolio diversification is better than you think (2011)
Working Paper: International Portfolio Diversification Is Better Than You Think (2006)
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: https://EconPapers.repec.org/RePEc:hal:spmain:hal-03602483

DOI: 10.1016/j.jimonfin.2010.10.003

Access Statistics for this paper

More papers in SciencePo Working papers Main from HAL
Bibliographic data for series maintained by Contact - Sciences Po Departement of Economics ().