@techreport{NBERw12220,
 title = "International Diversification at Home and Abroad",
 author = "Fang Cai and Francis E. Warnock",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "12220",
 year = "2006",
 month = "May",
 URL = "http://www.nber.org/papers/w12220",
 abstract = {It is an established fact that investors favor the familiar%u2014be it domestic securities or, within a country, the securities of nearby firms%u2014and avoid investments that would provide the greatest diversification benefits. While we do not rule out familiarity as an important driver of portfolio allocations, we provide new evidence of investors%u2019 international diversification motive. In particular, our analysis of the security-level U.S. equity holdings of foreign and domestic institutional investors indicates that institutional investors reveal a preference for domestic multinationals (MNCs), even after controlling for familiarity factors. We attribute this revealed preference to the desire to obtain %u201Csafe%u201D international diversification. We then show that holdings of domestic MNCs are substantial and, after accounting for this home-grown foreign exposure, that the share of %u201Cforeign%u201D equities in investors%u2019 portfolios roughly doubles, reducing (but not eliminating) the observed home bias.},
}