TY  - JOUR
AU  - Cai,Fang
AU  - Warnock,Francis E.
TI  - International Diversification at Home and Abroad
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12220
PY  - 2006
Y2  - May 2006
UR  - http://www.nber.org/papers/w12220
L1  - http://www.nber.org/papers/w12220.pdf
N1  - Author contact info:
Fang Cai
Division of International Finance, MS 19
Board of Governors of the Federal Reserve System
20th & C Streets NW
Washington, DC  20551
Tel: 202-452-3540
Fax: 202-263-4850
E-Mail: Fang.Cai@frb.gov

Francis E. Warnock
Darden Business School
University of Virginia
Charlottesville, VA 22906-6550
Tel: 434/924-6076
Fax: 434/243-8945
E-Mail: warnockf@darden.virginia.edu
M2  - featured in NBER digest on 2007-01-01
AB  - 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.
ER  -