Tror inte att den studien ger någon exakt redovisning, men i en intervju menar Cederburg att det antagligen handlar om valutaeffekter.
Intervju
Ben Felix: Yeah, it makes sense. I want to ask about home country bias. This paper is mind blowing for all of the reasons that we just talked about. This part, I’m very interested to get some answers here. The optimal portfolio is 50% domestic, 50% international. You show in the appendix that going down to 35% domestic is marginally better, but that 35% domestic, that’s still a massive home country bias for investors outside the US. What is driving that? Why is there such a large optimal allocation to domestic stocks? Sorry to keep going on the question, but we talked earlier about how much better international stocks look in the data. I just don’t get it.
Scott Cederburg: A few aspects, starting out with maybe the potential of at least having some domestic relative to international. There’s still long correlations, like not huge. There is certainly a positive correlation and relatively large, but it’s not 0.9 correlations, or anything. We’re out at 30-year horizons. There’s some just plain old diversification benefit. I think part of it, it’s a little tough to pin all the million couples down on why they preferred what, but I think a good part of it is probably currency stuff. If you think about over a long horizon, a 30-year period, if your currency appreciates over that whole period, then that tends to hurt your international investments.
Because in the US, I would be selling dollars to buy foreign currencies, to buy some stuff, and then eventually, I would have to buy dollars back again. If the dollar has strengthened, I’m able to buy fewer dollars. If we look at those cases where the currency has appreciated, it also tends to be the case that currency is appreciating in a country, because the economy is doing fairly well and the stock market’s doing fairly well, typically in those same periods. We do see that domestic stock returns are better than international stock returns if your currency appreciates over a long period.
Then if the currency depreciates, the opposite on both of these, I get to buy back cheap dollars, so my international investments do really well, and then the domestic market has probably suffered a little bit if the currency is weakening. I think that’s probably part of what’s going on. One thing that we looked at a little bit in our previous paper is all the stuff that we’re talking about now is completely unhedged on the currency side for the international stuff. It’s a little bit tough to perfectly look at this in the historical data because we have to make assumptions. We don’t have currency derivative data for this entire history, so we would have to make some assumptions about currency hedging and stuff.
It might be possible that if you were able to partially hedge your international portfolio or something, I don’t think you want to fully hedge the currency risk in your portfolio, because it has this nice property of offsetting local inflation, but that currency exchange rate volatility, if you’re really loaded up on international stuff, might become a little bit of an issue. It may be the case that partially hedging that cushions down the domestic piece.