Discussion
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Discussion12.docxDiscussion 12
First Part
Read the article above and the attachment article -part 2 article give a brief discussion about the article.
Second Part
Reply to the following response and make sure to have your comment and your own point view.
Rational Home Asset Bias - Depends where you live!
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You make a great post Chris, I remember advising investing in foreign securities in our module discussion on bond types. I did some research and found that the rough average percentage of foreign securities held by Americans is 15%, though with many investors holding multinational corporation securities, they may be reaping even more of a benefit from diversifying through that shortcut. I personally do not think that this is rationally justified for active investors, though there are clearly justifications for both ends. For example, Warren Buffet advocates for more diversification in global markets to mitigate risk. And he himself, is an American, so he contradicts that home bias to a degree. Forbes also has suggested bringing that 15% to 30% for US investors. It is as simple as committing to the idea that diversification mitigates risk and that by truly investing in foreign securities we can escape many domestic risks that impact even multinational corporations (think governance). Even if you live in an economy that is strong for investors, one may diversify in secure markets like Japan or South Korea. That is to say, while it makes sense that the rationale wold be based off of your location and strength of domestic markets, you can still diversify from a strong investment environment to another. The rationale of failing to further diversity in foreign markets and sticking to MNCs given the inclination towards the familiar, a more clear understanding of expectations and governance only makes sense for a more passive investor that doesn't have the resources to spend on understanding tax code, governance, and global markets.
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