Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/19514
Authors: 
Cai, Fang
Warnock, Francis E.
Year of Publication: 
2005
Series/Report no.: 
Discussion paper Series 1 / Volkswirtschaftliches Forschungszentrum der Deutschen Bundesbank 2005,06
Abstract: 
We analyze foreigners' and domestic institutional investors' positions in U.S. equities. Controlling for many factors, we uncover a common preference 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 investors' portfolios nearly doubles, reducing (but not eliminating) the observed home bias.
Subjects: 
home bias
international portfolio allocation
foreign exposure
JEL: 
G3
G11
G15
Document Type: 
Working Paper

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