I’m surprised by (and suspicious of) the claim about so many more international shares being non-tradeable, but it would change my view.
I would guess the savings rate thing is relatively small compared to the fact that a much larger fraction of US GDP is inevestable in the stock market—the US is 20-25% of GDP, but the US is 40% of total stock market capitalization and I think US corporate profits are also ballpark 40% of all publicly traded corporate profits. So if everyone saved the same amount and invested in their home country, US equities would be too cheap.
I agree that under EMH the two bonds A and B are basically the same, so it’s neutral. But it’s a prima facie reason that A is going to perform worse (not a prima facie reason it will perform better) and it’s now pretty murky whether the market is going to err one way or the other.
I’m still pretty skeptical of US equities outperforming, but I’ll think about it more.
I haven’t thought about the diversification point that much. I don’t think that you can just use the empirical daily correlations for the purpose of estimating this, but maybe you can (until you observe them coming apart). It’s hard to see how you can be so uncertain about the relative performance of A and B, but still think they are virtually perfectly correlated (but again, that may just be a misleading intuition). I’m going to spend a bit of time with historical data to get a feel for this sometime and will postpone judgment until after doing that.
I’m surprised by (and suspicious of) the claim about so many more international shares being non-tradeable, but it would change my view.
I would guess the savings rate thing is relatively small compared to the fact that a much larger fraction of US GDP is inevestable in the stock market—the US is 20-25% of GDP, but the US is 40% of total stock market capitalization and I think US corporate profits are also ballpark 40% of all publicly traded corporate profits. So if everyone saved the same amount and invested in their home country, US equities would be too cheap.
I agree that under EMH the two bonds A and B are basically the same, so it’s neutral. But it’s a prima facie reason that A is going to perform worse (not a prima facie reason it will perform better) and it’s now pretty murky whether the market is going to err one way or the other.
I’m still pretty skeptical of US equities outperforming, but I’ll think about it more.
I haven’t thought about the diversification point that much. I don’t think that you can just use the empirical daily correlations for the purpose of estimating this, but maybe you can (until you observe them coming apart). It’s hard to see how you can be so uncertain about the relative performance of A and B, but still think they are virtually perfectly correlated (but again, that may just be a misleading intuition). I’m going to spend a bit of time with historical data to get a feel for this sometime and will postpone judgment until after doing that.