《国际财务管理》（英文版） Chap11 International portfolio Investments

Chapter Eleven International portfolio Investments Chapter Objectives Why investors diversify their portfolios internationally 2. How much investors can gain from international diversification 3. The effects of fluctuating exchange rates on international portfolio investments Whether and how much investors can benefit from investing in U.S. based international mutual funds 5. The reasons for home bias in portfolio holdings

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. INTERNATIONAL FINANCIAL MANAGEMENT EUN / RESNICK Second Edition 11 Chapter Eleven International Portfolio Investments Chapter Objectives: 1. Why investors diversify their portfolios internationally. 2. How much investors can gain from international diversification. 3. The effects of fluctuating exchange rates on international portfolio investments. 4. Whether and how much investors can benefit from investing in U.S. based international mutual funds. 5. The reasons for “home bias” in portfolio holdings

Chapter outline o International Correlation Structure and risk Diversification Optimal International portfolio selection Effects of changes in the Exchange rate o International Bond investment o International mutual funds.A Performance Eⅴ aluation McGraw-Hilylrwoin 11-1 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 11-1 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) o International Diversification through Countr Funds International diversification with adrs o International diversification with WeBs o Why home Bias in Portfolio holdings McGraw-Hilylrwoin 11-2 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 11-2 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 e 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 McGraw-Hilylrwoin 11-3 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 11-3 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 Stock Market AU FR GM JP NL sn UK US Australia(An) Relatively low international correlations france(FR) 576 imply that investors should be able to Germany (GM) -183 312 653 reduce portfolio risk more if they Japan (JP 152 238 300 416 diversify internationall rather than domestically Netherlands 241 344 509 Switzerland 358 368 475 281 517 (w United Kingdom 315378 299 209 393 431 698 United states 304 137 271 272 279 (US McGraw-Hilylrwoin 114 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 11-4 International Correlation Structure Stock Market AU FR GM JP NL SW UK US Australia (AU) .586 France (FR) .286 .576 Germany (GM) .183 .312 .653 Japan (JP) .152 .238 .300 .416 Netherlands (NP) .241 .344 .509 .282 .624 Switzerland (SW) .358 .368 .475 .281 .517 .664 United Kingdom (UK) .315 .378 .299 .209 .393 .431 .698 United States (US) .304 .225 .170 .137 .271 .272 .279 .439 Relatively low international correlations imply that investors should be able to reduce portfolio risk more if they diversify internationally rather than domestically

Domestic vs. International Diversification a fuwhehvarsnidavetefratjaamalnpenttblomas rdyttbzipeaerbteakessskyaashabfcaigiskyiragla c purely U.s. psettoito Swiss stocks 0.44 0.27 U.S. stocks 0.12 International stocks 1020304050 Number of Stocks McGraw-Hilylrwoin 11-5 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 11-5 Domestic vs. International Diversification 0.44 0.27 0.12 Portfolio Risk (%) Number of Stocks 1 10 20 30 40 50 Swiss stocks U.S. stocks International stocks When fully diversified, an international portfolio can be less than half as risky as a purely U.S. portfolio. A fully diversified international portfolio is only 12 percent as risky as holding a single security

Optimal International Portfolio Selection o 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% o The correlation of the u.s. stock market with the Japanese stock market is 24% eAU.S. investor would get more diversification from investments in Japan than Canada McGraw-Hilylrwoin 11-6 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 11-6 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 (SUS Stock market Correlation Coefficient Me ean FR GM JP UK Canada(c 583 0.90 France(FR) 142 7.01 79%o monthly return =9.48% Germany 0.330.66 per year 1.23 6740.87 (GM) Japan (JP) 0260420.36 1.47 7.311.22 United 0.580.540.49 0.42 1.52 5410.90 Kingdom United states0.700450.370.40.571.33 4560.80 McGraw-Hilylrwoin 11-7 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 11-7 Summary Statistics for Monthly Returns 1980-1992 ($U.S.) Stock Market Correlation Coefficient Mean (%) SD (%)  CN FR GM JP UK Canada (CN) .79 5.83 0.90 France (FR) 0.38 1.42 7.01 1.02 Germany (GM) 0.33 0.66 1.23 6.74 0.87 Japan (JP) 0.26 0.42 0.36 1.47 7.31 1.22 United Kingdom 0.58 0.54 0.49 0.42 1.52 5.41 0.90 United States 0.70 0.45 0.37 0.24 0.57 1.33 4.56 0.80 .79% monthly return = 9.48% per year

Summary statistics for monthly Returns 1980-1992 (SUS Stock market Correlation Coefficient Me ean FR GM JP UK Canada(c B measures the sensitivity of the. 79 583 0.90 market to the world market France(FR) 142 7.01 Clearly the Japanese market is Germany 0. 0. nore sensitive to the world 1.23 6740.87 (GM) market than is the u.s Japan (JP) 0260420.36 1.47 7.31 United 0.580.540.49 0.42 1.52 5410.90 Kingdom United states0.700450.370.40.571.33 4.56(0.80 McGraw-Hilylrwoin 11-8 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 11-8 Summary Statistics for Monthly Returns 1980-1992 ($U.S.) Stock Market Correlation Coefficient Mean (%) SD (%)  CN FR GM JP UK Canada (CN) .79 5.83 0.90 France (FR) 0.38 1.42 7.01 1.02 Germany (GM) 0.33 0.66 1.23 6.74 0.87 Japan (JP) 0.26 0.42 0.36 1.47 7.31 1.22 United Kingdom 0.58 0.54 0.49 0.42 1.52 5.41 0.90 United States 0.70 0.45 0.37 0.24 0.57 1.33 4.56 0.80  measures the sensitivity of the market to the world market. Clearly the Japanese market is more sensitive to the world market than is the U.S

The optimal International portfolio 3 2.5 Efficient set 153 垂 FR GlV 0 4.2% 6 Standard deviation(monthly) McGraw-Hilylrwoin 11-9 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 11-9 The Optimal International Portfolio 0 0.5 1 1.5 2 2.5 3 0 2 4 6 8 Standard Deviation (monthly) Mean Return (monthly) US CN GM UK JP FR 4.2% 1.53 OIP Efficient set Rf