Please does anyone know how the cost of international equity is more than that of domestic in this question based on response in curriculum
Higher transaction costs for international equity compared with domestic
equity could explain the wider range for international equity compared with
domestic equity under the cost–benefit approach. Another potential explanation
relates to the possibility that international equity has a higher correlation with
the balance of the portfolio (i.e., the portfolio excluding international equity)
than does domestic equity (i.e., with the portfolio excluding domestic equity).
If that is the case then, all else being equal, a wider band would be justified for
international equity
If it costs a lot of money to rebalance, we would rather allow it to deviate further before deciding to buy or sell into our high fee international equities.
From text: "For example, an asset that is more highly correlated with the rest of the portfolio than another would merit a wider rebalancing range, all else equal, because it would be closer to being a substitute for the balance of the portfolio; thus, larger deviations would have less impact on portfolio risk."
Thats from the paragraph before the example, I guess the logic states that if its highly correlated, why bother rebalance sooner than later if its already moving in the same direction as the overall portfolio.
