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Fig. 1: Foreign Diversification (FD) Trends of Individual Countries With technological developments and easy access to information, investors are well aware of the advantages of investing internationally. Also our sample contained developed countries only where access to information is quite easy and readily available. We believed that political instability has also an effect in increasing foreign diversification. Based on the estimation, our argument that political instability yields to greater international diversification is not valid. In short, home equity bias is a phenomenon that is becoming extinct now, with investors diversifying their portfolios internationally. Trade openness and easy access to information are the reasons that have mainly contributed towards lessening of home equity bias. Future research may incorporate wider data sets and try to further establish the positive link between political instability and foreign diversification by incorporating different measures of accessing political instability in a country. Figure 1 clearly show the enhanced nature of foreign diversification (indicating lessening of home equity bias) over the period 1995 2009. Almost all the countries show structural breaks starting around 2008. The underlying reason can be, arguably, the global financial crisis that hit most of the countries under consideration. REFERENCES 1. Christelis, D., T. Jappelli and M. Padula, 2006. Cognitive Abilities and Portfolio Choice. CSEF Working, pp: 157. Obstfeld, M. and K. Rogoff, 2000. The six major puzzles in international macroeconomics: Is there a common cause? NBER Macroeconomics Annual, pp: 339-390. French, K. and J. Poterba, 1991. Investors diversification, and international equity markets. American Economic Review, 81: 222-226. Cooper, I.A. and E. Kaplanis, 1994. Home bias in equity portfolios, inflation hedging, and international capital market equilibrium. The Review of Financial Studies, 7(1): 45-60. Tesar, L. and I.M. Werner, 1995. Home bias and high turnover. Journal of International Money and Finance, 14(4): 467-492.

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