Investor Diversification and International Equity Markets

Kenneth French and James Poterba

No 3609, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The benefits of international diversification have been recognized for decades. In spite of this, most investors hold nearly all of their wealth in domestic assets. In this paper, we construct new estimates of the international equity portfolio holdings of investors in the U.S., Japan, and Britain. More than 98% of the equity portfolio of Japanese investors is held domestically; the analogous percentages are 94% for the U.S., and 82% for Britain. We use a simple model of investor preferences and behavior to show that current portfolio patterns imply that investors in each nation expect returns in their domestic equity market to be several hundred basis points higher than returns in other markets. This lack of diversification appears to be the result of investor choices, rather than institutional constraints.

Date: 1991-01
Note: ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1120)

Published as American Economic Review, Vol. 81, (May 1991), pp.222-226.
Published as French, Kenneth R. and James M. Poterba. "Investor Diversification And International Equity Markets," American Economic Review, 1991, v81(2), 222-226.

Downloads: (external link)
http://www.nber.org/papers/w3609.pdf (application/pdf)

Related works:
Journal Article: Investor Diversification and International Equity Markets (1991)
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:nbr:nberwo:3609

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w3609

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().