Investing in a foreign country is always a challenge
Investing in a foreign country is always challenging. Not only that, but these challenges can come in many different forms. Among the biggest challenges, we find the key notion of distance. There are two types of distances: distance in physical dimension and distance in cultural dimension. When an investor look at an investment opportunity abroad, he or she will automatically take into considerations these two elements. Cultural dimension is an interesting element. Every country has a unique culture or even mix of cultures and this means that every country has a unique view on investing. A perfect illustration of this principle is to look at France, The US and India. You will find out that many French investors have a negative view of stocks while they tend to invest massively in real estate and life insurances. American investors tend to have a much more optimist view when it comes to stock investing and tend to see real estate as far less attracting. This difference of view explains in part why Chicago's property prices are so low compared to Paris' ones. This however does not mean in any way that Paris property prices should be that high or that Chicago's prices are fairly priced. Finally, when you look at India, you will see that many Indian investors are fan of gold. That does not mean that Indian do not have interests in real estate or stocks but they have more interests in gold than many other countries. Distance in physical dimension also of primary importance when it comes to investment decisions. Why? Because many studies have proved that investors were suffering of what is called "home bias". In other words, a Japanese investor will more be likely to think that Japanese stocks are a good investment than an American or a Spanish investor. Similarly, the American investor will tend to think that American stocks are the best investment type. Not only this home bias affect your view of your own country but it has also been demonstrated that it can affect investor’s views of other countries. The closer (geographically speaking) a country is to an investor's one the more likely this investor will be to consider investing in it. For example, a Japanese investor would be more likely to invest in another Asian country than investing in a European country.