Working Paper: NBER ID: w21236
Authors: Geert Bekaert; Kenton Hoyem; Weiyin Hu; Enrichetta Ravina
Abstract: We examine the international equity allocations of 3.8 million individuals in 296 401(k) plans over the 2005-2011 period. We find enormous cross-individual variation, ranging from zero to over 75%, and strong cohort effects, with younger cohorts investing more internationally than older ones, and each cohort investing more internationally over time. Access to financial advice, lower fees and more international fund options are associated with higher international allocations, suggesting a role for plan design and policy. Education, financial literacy and the fraction of foreign-born population in the zip code also have positive effects on international diversification, consistent with familiarity and information stories.
Keywords: 401k; international diversification; home bias; financial advice
JEL Codes: G11; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Lower fees (G19) | Higher international allocations (F29) |
| Greater number of international fund options (G15) | Higher international allocations (F29) |
| Younger cohorts (J19) | Higher likelihood of investing internationally (F21) |
| Higher salaries (J31) | Greater international allocations (F29) |
| Higher house values (R21) | Greater international allocations (F29) |
| Larger account balances (D14) | Lower international diversification (F29) |
| Access to financial advice (G53) | Higher international allocations (F29) |