Chap11International Portfolio Investments(国际财务管理,英文版).ppt

Chapter Outline International Correlation Structure and Risk Diversification Optimal International Portfolio Selection Effects of Changes in the Exchange Rate International Bond Investment International Mutual Funds: A Performance Evaluation Chapter Outline (continued) International Diversification through Country Funds International Diversification with ADRs International Diversification with WEBS Why Home Bias in Portfolio Holdings? International Correlation Structure and Risk Diversification Security returns are much less correlated across countries than within a country. This is so because economic, political, institutional, and even psychological factors affecting security returns tend to vary across countries, resulting in low correlations among international securities. Business cycles are often high asynchronous across countries. International Correlation Structure Domestic vs. International Diversification Optimal International Portfolio Selection The correlation of the U.S. stock market with the returns on the stock markets in other nations varies. The correlation of the U.S. stock market with the Canadian stock market is 70%. The correlation of the U.S. stock market with the Japanese stock market is 24%. A U.S. investor would get more diversification from investments in Japan than Canada. Summary Statistics for Monthly Returns 1980-1992 ($U.S.) Summary Statistics for Monthly Returns 1980-1992 ($U.S.) The Optimal International Portfolio Composition of the OIP for a U.S. Investor Gains from International Diversification For a U.S. investor, the risk-return tradeoff for the optimal international portfolio and optimal domestic portfolio are shown below and at right. Effects of Changes in the Exchange Rate The realized dollar return for a U.S. resident investing in a foreign market will depend not only on the return in the foreign market but also on the change in the exchange rate between the U.S. dollar and the foreign currency. Effects of Changes in t