International portfolio selection with exchange rate risk: A behavioural portfolio theory perspective

► We analyze international portfolio choice using behavioural portfolio theory (BPT). ► We characterize the existence of the optimal portfolio in individual markets. ► We explore properties of the optimal portfolio and investors' hedging behaviour. ► We show that the aggregate portfolio is typically not mean-variance efficient. ► We show that the loss in efficiency depends on the BPT investors' risk attitudes.