Too much of a good thing? Combining Canadian equities with international equities to improve diversification.

In this paper, we compare the performance and characteristics of Canadian and international equities from the standpoint of a Canadian investor. We focus on the decision of how much to allocate to Canadian versus international equities, using representative indexes as proxies. Based on a study of pension fund providers, Canadian investors have demonstrated a home bias when investing in equities. We find that increasing the allocation to international equities improves the diversification profile compared to holding only Canadian equities.