This paper examines the evidence on international portfolio investment in five OECD countries—Canada, Germany, Japan, the United Kingdom, and the United States—during the 1970–1990 period. It documents the available data on long-term international investment patterns, including investment in corporate equities, government and corporate bonds, and international financial transactions. The study finds that despite the potential gains from international diversification, there is strong evidence of home bias in national investment portfolios. Foreign securities holdings remain relatively small, with the United Kingdom having the highest proportion (33.3% of GDP) and the United States and Canada having less than 10%. The paper also finds that the composition of foreign securities portfolios does not seem to reflect diversification of risk. However, the high volume of cross-border capital flows and the high turnover rate on foreign equity investments suggest that transaction costs and incomplete information are unlikely to be significant barriers to international investment. These observations suggest that a richer set of models is needed to explain international investment behavior. The study analyzes the returns on international securities investment, finding that the risk-return trade-off of the market and the optimal portfolio is more favorable than that of the portfolios chosen by investors. It also calculates the expected returns required to justify the observed degree of home bias, finding that investors seem to anticipate returns on domestic equity of 60 to 420 basis points in excess of actual returns. The paper also examines the data on international security transactions, finding that the turnover rate on foreign equity investments is high compared to both the investor's home market and the market of the foreign security. These observations suggest that the high turnover rate in international markets casts doubt on explanations of home bias that rely on prohibitive transaction costs. It also suggests that investors respond to changes in economic conditions by making frequent and sizable shifts in their holdings of foreign securities. The study finds that the volume of transactions in international markets is large and has increased dramatically in the 1980s. The turnover rate on securities held by non-residents is higher than the overall turnover rate in the domestic market. The paper also finds that the international investment positions of investors are far less than one would predict based on the country shares of the world market. The paper concludes that the observed international investment behavior cannot be explained by transaction costs or barriers to international investment. Instead, other factors such as access to information and geographic proximity may be more important than the diversification motive for international portfolio choice. The study also finds that the returns on international securities investment are higher than those on domestic securities, suggesting that investors may be overconfident in their expectations of domestic returns.This paper examines the evidence on international portfolio investment in five OECD countries—Canada, Germany, Japan, the United Kingdom, and the United States—during the 1970–1990 period. It documents the available data on long-term international investment patterns, including investment in corporate equities, government and corporate bonds, and international financial transactions. The study finds that despite the potential gains from international diversification, there is strong evidence of home bias in national investment portfolios. Foreign securities holdings remain relatively small, with the United Kingdom having the highest proportion (33.3% of GDP) and the United States and Canada having less than 10%. The paper also finds that the composition of foreign securities portfolios does not seem to reflect diversification of risk. However, the high volume of cross-border capital flows and the high turnover rate on foreign equity investments suggest that transaction costs and incomplete information are unlikely to be significant barriers to international investment. These observations suggest that a richer set of models is needed to explain international investment behavior. The study analyzes the returns on international securities investment, finding that the risk-return trade-off of the market and the optimal portfolio is more favorable than that of the portfolios chosen by investors. It also calculates the expected returns required to justify the observed degree of home bias, finding that investors seem to anticipate returns on domestic equity of 60 to 420 basis points in excess of actual returns. The paper also examines the data on international security transactions, finding that the turnover rate on foreign equity investments is high compared to both the investor's home market and the market of the foreign security. These observations suggest that the high turnover rate in international markets casts doubt on explanations of home bias that rely on prohibitive transaction costs. It also suggests that investors respond to changes in economic conditions by making frequent and sizable shifts in their holdings of foreign securities. The study finds that the volume of transactions in international markets is large and has increased dramatically in the 1980s. The turnover rate on securities held by non-residents is higher than the overall turnover rate in the domestic market. The paper also finds that the international investment positions of investors are far less than one would predict based on the country shares of the world market. The paper concludes that the observed international investment behavior cannot be explained by transaction costs or barriers to international investment. Instead, other factors such as access to information and geographic proximity may be more important than the diversification motive for international portfolio choice. The study also finds that the returns on international securities investment are higher than those on domestic securities, suggesting that investors may be overconfident in their expectations of domestic returns.