With the globalization of financial markets, investors now have the opportunity to diversify their portfolio holdings across different countries.  However, studies have found that investors tend to disproportionately weight their their asset portfolios towards domestic assets and securities, forgoing possible gains -- in lower correlated risks and higher returns from riskier international assets -- from international diversification. 

In this NBER Working Paper, Wharton financial economist Karen K. Lewis considers an explanation for this puzzle: that in fact, the potential gains from international portfolio diversification has been declining.  To this purpose, Prof Lewis considers two basic groups of international portfolio returns: 1)  a portfolio comprising foreign market indices and 2)  a portfolio of foreign stocks that are listed and traded in the United States.  Prof Lewis finds that firstly, international equity markets have become only slightly more correlated over the years.  Thus, the common perception that equity markets have become more integrated is in fact overstating things.  Secondly, foreign stocks that are listed on US exchanges have become significantly more correlated with US markets over time.  Therefore the potential gains from international portfolio diversification have declined over time and it seems that investors have little to gain by buying into foreign stocks that are listed on domestic exchanges.