Home Biasness & International Diversification : Are The Benefits of International Diversification Starting to Deteriorate?

Sammanfattning: Is home biasness common among modern investors? To which extent do Swedish investors diversify their investments on an international level? Does home biasness negatively affect the investors performance? To answer these questions, correlation tests of various international indices ranging over four different time periods are conducted, in order to see if correlation between markets are stronger today than before, as stronger correlation would render diversification less useful. To enhance the study, the holdings of the top ten Swedish funds, measured in fund capital according to Morningstar, is reviewed, based on data collected per 2014-12-31 from the Swedish Financial Supervisory Agency (FI). This gives an overview of how the funds diversify their investments internationally, these funds will in turn represent the average Swedish investor in the thesis. By constructing a bullet curve from a set of international indices, the author will analyse to which grade international diversification is useful. The results are that international diversification isn’t as beneficial as theory suggests it is. The reason for it may be due to stronger correlation between international markets in the past 15 years. Most of the Swedish funds tends to be rather home biased in their investments, as about a quarter of the holdings usually are placed in Swedish assets, and in accordance with the results of the indices development, the more home biased they are to Sweden, the better they tend to perform.