International Investment: Is There Value in Overcoming Home Bias?

On average Australians invest 80% of their money locally and 20% with overseas companies. This home bias has brought higher returns than investing in international shares over 20 years. Yet there's a price – it costs 1.74% more to attract capital for Australian business because it's seen as small and risky. This premium is a drag on economic development that can be overcome through more widespread investment in foreign markets, argues Bohui Zhang, a researcher in international corporate finance at the Australian School of Business. While applying standard investment "diversification" rules to sinking money into offshore markets definitely increases opportunities, other experts warn it also means sharing the risks.