Equity Home Bias: Can Information Cost Explain the Puzzle?

losses of one particular stock can be offset with gainsfrom another; for example, losses from the recentbad performance in technology stocks might havebeen cushioned by the strong gains of oil companies.The increasingly integrated international financialmarkets offer one such opportunity for diversifica-tion. Investors could significantly reduce their riskexposure if they held a portion of their asset port-folio in foreign stocks. Surprisingly, investors in allmajor industrialized countries do not exploit this risk-sharing opportunity but instead hold large shares oftheir portfolio in domestic stocks. This tendency isnamed