INVESTMENTS 投资学 （博迪BODIE, KANE, MARCUS）Chap025 Diversification.ppt

CHAPTER 25 International Diversification Figure 25.11 Risks and rewards of international portfolios, 2000–2009 Performance Attribution The EAFE index is a commonly used benchmark for portfolio performance. Measure the contribution of: Currency selection Country selection Stock selection Cash/bond selection Table 25.15 Example of Performance Attribution: International * * * * * * INVESTMENTS | BODIE, KANE, MARCUS INVESTMENTS | BODIE, KANE, MARCUS Copyright ? 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Background The 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 stock market. The weight of the U.S. within this group of six is 54%. Background Clearly, U.S. stocks do not comprise a fully diversified equity portfolio. International investing provides greater diversification opportunities. It also carries some special risks. Figure 25.1 Per Capita GDP and Market Capitalization as Percentage of GDP A developed stock market enriches the population. Home-country bias: Investors frequently overweight home-country stocks. They may even completely ignore opportunities for international diversification. Issues Foreign Exchange Risk Variation in return due to changes in the 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 Investing Risk Factors in International Investing Return expressed in local currency Return obtained when local currency is exchanged for home currency. Two sources of variation or risk: * Suppose 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 on