投資學(xué)英文版課件：Chap025 International Diversification

1、CHAPTER 25International DiversificationBackgroundThe U.S. accounts for only about a third of world stock market capitalization.Emerging markets make up about 16% of the world stock market.Of the six largest countries U.S., Japan, U.K., France, Hong Kong and Canada make up about 62% of the world stoc

2、k market.The weight of the U.S. within this group of six is 54%.2BackgroundClearly, U.S. stocks do not comprise a fully diversified equity portfolio.International investing provides greater diversification opportunities.It also carries some special risks.3Figure 25.1 Per Capita GDP and Market Capita

3、lization as Percentage of GDP 4A developed stock market enriches the population.Home-country bias: Investors frequently overweight home-country stocks.They may even completely ignore opportunities for international diversification.Issues5Foreign Exchange RiskVariation in return due to changes in the

4、 exchange rate.Foreign investments may yield more or less home currency than expected.A foreign investment is simultaneously an investment in an overseas asset and in a foreign currency.Risk Factors in International Investing6Risk Factors in International InvestingReturn expressed in local currency

5、Return obtained when local currency is exchanged for home currency.Two sources of variation or risk:7Suppose the risk-free rate in U.K. is 10% and the current exchange rate is $2/1.A U.S. investor with $20,000 can buy 10,000 and invest them to obtain 11,000 in one year.If the depreciates to $1.80, t

6、he investment will yield only $19, 800, a $200 loss.The investment was not risk free to a U.S. investor!Example 25.1 Exchange Rate Risk8The equation shows that the return to the U.S. investor is:The pound-denominated returnMultiplied byThe exchange rate “return”Example 25.1 Exchange Rate Risk9Figure

7、 25.2 Stock Market Returns in U.S. Dollars and Local Currencies for 200910Hedging Exchange Rate RiskFutures or forward markets are used to hedge the risk.The U.S. investor can make a riskless dollar return either by investing in UK bills and hedging exchange rate risk or by investing in riskless U.S

8、. assets.11In principle, security analysis at the macroeconomic, industry, and firm-specific level is similar in all countries.In practice, getting good information about foreign investments can be more difficult.PRS Group (Political Risk Services) assesses political risk by country.Political Risk12

9、Table 25.5 Variables used in PRSs Political Risk Score13Table 25.6 Current Risk Ratings and Composite Risk Forecasts14Table 25.7 Composite and Political Risk Forecasts15Table 25.7 InterpretationThe table captures country risk through scenario analysis.Risk stability is based on the difference in the

10、 rating between the best- and worst-case scenarios.16Table 25.8 Political Risk Points by Component17Foreign Investment AvenuesPurchase securities directly in the capital markets of other countries.American depository receipts (ADR)International mutual fundsInternational ETFs18Are Investments in Emer

11、ging Markets Riskier?For the overall portfolio, standard deviation of excess returns is the appropriate measure of risk.For an asset to be added to the current portfolio, beta (covariance with U.S. portfolio) is the appropriate measure of risk.19Figure 25.3 Monthly Std Deviation of Excess Returns in

12、 Developed, Emerging Markets20Figure 25.4 Index Dollar Return Beta on U.S. Stocks, 2000200921Figure 25.5 Average Dollar-Denominated Excess Returns22Average Country-Index Returns and Capital Asset Pricing TheoryFigure 25.5 shows a clear advantage to investing in emerging markets.Results are consisten

13、t with risk ranking by standard deviation, but not with ranking by beta.Beta rankings may fail because of home-country bias, which dominates international investing.23Correlations between countries suggest international diversification is beneficial, especially for active investors.Globalization may

14、 have caused higher cross-country correlations.Its possible to expand the efficient frontier some.Its possible to reduce the systematic risk level below the domestic only level.Benefits from International Diversification24Figure 25.6 International Diversification25Figure 25.8 Efficient Frontier of C

15、ountry Portfolios26Are Benefits Preserved in Bear Markets?Correlations between countries may increase in a crisis.Rolls model suggests a common factor underlying the movement of stocks around the world.Prediction: Diversification only protects against country-specific events.What happened in 1987? I

16、n 2008?27Figure 25.9 Regional Indexes around the Crash, October 14October 26, 198728Figure 25.10 Beta and SD of Portfolios29Three Rules of ThumbTo passively diversify your portfolio, include country indexes in order of:Market capitalization (from high to low)Beta against the U.S. (from low to high)Country index standard deviation (from high to low)30Figure 25.11 Risks and rewards of international portfolios, 2000200