International diversification: Households versus institutional investors

• Directly investing households display more domestically concentrated portfolios than institutional investors.
• We investigate which factors can explain the different investment patterns of individual versus institutional investors.
• We focus on individual and institutional portfolios in France, Italy, Spain and Sweden over the period 2001–2004.
• Transparency and listing on the Euronext exchange affect more heavily individuals than institutional investors.
• Policies encouraging transparency and stock exchange consolidation can foster households’ international diversification.

Directly investing households exhibit more domestically concentrated portfolios than institutional investors. We aim to identify the factors that asymmetrically affect the foreign equity portfolios held by households and institutional investors in four European investing countries – France, Italy, Spain, and Sweden. We find that transparency and being listed on a common exchange platform such as Euronext have larger effects on households’ portfolio decisions than on those of institutional investors. Policies encouraging transparency and common, standardized trading rules can therefore be particularly effective in helping households to better internationally diversify their portfolios.