domestic shares under full diversification. When stock-market data are directly used, the predicted coefficient of home bias …

This paper conducts a theoretical and empirical investigation of global portfolio diversification for long … risk at long horizons and does not diminish the benefits of global portfolio diversification to long-term investors … volatility shocks. Our findings imply that the benefits of global equity diversification have not declined for long horizon …

would imply about the diversification potential across countries. For this purpose, I examine two basic groups of … group since this is the standard approach in the international diversification literature, while I study the second group … since some have argued that US-listed foreign stocks are the more natural diversification vehicle (Errunza et al (1999)). In …

portfoliosshould be heavily biased toward foreign assets. The fact that theopposite pattern of diversification is observed empirically … constitutes the international diversification puzzle. We embed aportfolio choice decision in a frictionless two-country, two … against non-diversifiable labor income risk. We then use our our theory to link openness to trade to the level of …