We extend the number of assets available to a UK investor who wishes to select a portfolio of international financial assets. A two-stage allocation strategy is adopted by first forming time-varying portfolios of international government bonds and European equity, both of which constitute a single asset in the final asset allocation procedure. We find that extending the investment opportunity set presents substantial risk-return advantages to the investor, together with better performing portfolios. Finally, we show that the level of home country bias prevalent in the UK is quite large. Our results show that, on average, home assets constitute only 57% of the optimal portfolio, while survey results suggest the actual proportion of home assets held by UK investors is 82%. We find that on average six foreign assets should be held in the optimal portfolio with US, French and German equity all having a major role to play.
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