TY  - JOUR
AU  - French,Kenneth R.
AU  - Poterba,James M.
TI  - Investor Diversification and International Equity Markets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3609
PY  - 1991
Y2  - January 1991
UR  - http://www.nber.org/papers/w3609
L1  - http://www.nber.org/papers/w3609.pdf
N1  - Author contact info:
Kenneth R. French
85 Trescott Road
Etna, NH 03750
Tel: 603/643-5750
Fax: 603/643-6817
E-Mail: kfrench@dartmouth.edu

James M. Poterba
Department of Economics
MIT, E52-350
50 Memorial Drive
Cambridge, MA  02142-1347
Tel: 617/253-6673
Fax: 617/258-7804
E-Mail: poterba@nber.org
M2  - featured in NBER digest on 1991-05-01
AB  - 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.
ER  -