Foreign Investments of U.S. Individual Investors: Causes and Consequences

Using thousands of brokerage accounts of U.S. individual investors, we analyze the motivations and consequences of foreign equity investment. We find that diversification is not the only reason that investors trade foreign securities. While wealthier, more experienced investors enjoy an informationa...

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Bibliographic Details
Published in:Management science 2008-03, Vol.54 (3), p.443-459
Main Authors: Bailey, Warren, Kumar, Alok, Ng, David
Format: Article
Language:English
Subjects:
Analysis
Applied sciences
behavioral biases
Behavioural economics
Decision analysis
diversification
Exact sciences and technology
Financial investments
Financial portfolios
Foreign direct investment
Foreign investments
Foreign securities
individual investors
International finance
International trade
Investment analysis
Investment policy
Investments abroad
Investors
Motivation
Mutual funds
Operational research and scientific management
Operational research. Management science
Peer groups
Portfolio diversification
Portfolio performance
Portfolio theory
Social aspects
speculation
Studies
U.S.A
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Summary:Using thousands of brokerage accounts of U.S. individual investors, we analyze the motivations and consequences of foreign equity investment. We find that diversification is not the only reason that investors trade foreign securities. While wealthier, more experienced investors enjoy an informational advantage and, thus, are more likely to invest overseas and experience good portfolio performance, other investors appear to venture abroad for the wrong reasons. In particular, behaviorally biased investors often underuse or misuse foreign equity securities and experience poor portfolio performance. Some investors appear to use foreign securities for speculation or to improve upon poor domestic portfolio performance.
ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.1070.0793