Should we invest more in multinational companies when domestic markets decline?

Investments in domestic multinational firms can provide an indirect route for investors to diversify internationally (Farooqi, Huerta, & Ngo, 2015). Therefore, a priori, one would expect investors to increase their exposure to MNCs when the domestic market is declining, and decrease their exposure to domestic firms. Using a 20 year dataset of all publicly listed US firms spanning 1995 to 2014 we find the opposite. We find that investors favour domestic firms to MNCs in declining markets. We analyse share ownership data and propose that the diverging investment preferences of institutional and retail investors may be driving our results.