Investing at home and abroad: Different costs, different people?

We investigate US households' direct investment in stocks, bonds and liquid accounts and their foreign counterparts, in order to identify the different participation hurdles affecting asset investment domestically and overseas. To this end, we estimate a trivariate probit model with three further selection equations that allows correlations among unobservables of all possible asset choices. Our results point to the existence of a second hurdle that stock owners need to overcome in order to invest in foreign stocks. On the other hand, we find little evidence for additional pecuniary or informational costs associated with investment in foreign bonds and liquid accounts.

► We study household investment in domestic and foreign stocks, bonds, liquid accounts. ► Our model allows for additional participation hurdles in foreign markets. ► Participation is costly for any kind of stocks, bonds and accounts. ► We find additional costs only in the case of investment in foreign stocks. ► Households need resources and financial sophistication to invest in foreign stocks.