Multinational Financial Management（跨国公司财务管理）ch15 Examining International Portfolio Investing.ppt

1、CHAPTER 15,Examining International Portfolio Investing,Why Invest Internationally?,What are the advantages of international investment?,THE BENEFITS OF INTERNATIONALEQUITY INVESTING,I.THE BENEFITS OF INTERNATIONAL EQUITY INVESTING A.Advantages 1.Offers more opportunities than a purely domestic portf

2、olio 2.Attractive investments overseas 3.Impact on efficient portfolio with diversification benefits,II. Basic Portfolio Theory,II. Basic Portfolio Theory A. What is the efficient frontier? It represents the most efficient combinations of all possible risky assets.,The Efficient Frontier,E(r),A,B,Ba

3、sic Portfolio Theory,The broader the diversification, the more stable the returns and the more diffuse the risk.,Basic Portfolio Theory,B.International Diversification 1. Risk-return tradeoff: may be greater,Basic Portfolio Theory,Total Risk 1. A Securitys Returns may be segmented into Systematic Ri

4、sk can not be eliminated Non-systematic Risk can be eliminated by diversification,The Benefits of Intl Diversification,INTERNATIONAL DIVERSIFICATION,2. International diversification and systematic risk a.Diversify across nations with different economic cycles b.While there is systematic risk within

5、a nation, outside the country it may be nonsystematic and diversifiable,INTERNATIONAL PORTFOLIO INVESTMENT,3.Recent History a.National stock markets have wide differences in returns and risk. b.Emerging markets have higher risk and return than developed markets. c.Cross-market correlations have been

6、 relatively low.,INTERNATIONAL PORTFOLIO INVESTMENT,4.Theoretical Conclusion International diversification pushes out the efficient frontier.,The New Efficient Frontier,E(r),A,B,C,CROSS-MARKET CORRELATIONS,5.Cross-market correlations a. Recent markets seem to be most correlated when volatility is gr

7、eatest b. Result: Efficient frontier retreats,The Frontier During Global Crises,E(r),A,B,C,Investing in Emerging Markets,D.Investing in Emerging Markets a.Offers highest risk and returns b.Low correlations with returns elsewhere c.As impediments to capital market mobility fall, correlations are like

8、ly to increase in the future.,Barriers to International Diversification,E. Barriers to International Diversification 1.Segmented markets 2.Lack of liquidity 3.Exchange rate controls 4.Underdeveloped capital markets 5.Exchange rate risk 6.Lack of information a.not readily accessible b.data is not com

9、parable,Other Methods to Diversify,F.Diversify by a 1.Trade in American Depository Receipts (ADRs) 2.Trade in American shares 3.Trade internationally diversified mutual funds: a.Global (all types) b.International (no home country securities) c.Single-country,INTERNATIONAL PORTFOLIO INVESTMENT,4.Calc

10、ulation of Expected Portfolio Return: rp = a rUS + ( 1 - a) rrw where rp = portfolio expected return rUS = expected U.S. market return rrw = expected global return,Expected Portfolio Return,Sample Problem What is the expected return of a portfolio with 35% invested in Japan returning 10% and 65% in

11、the U.S. returning 5%? rp = a rUS + ( 1 - a) rrw = .65(.05) + .35(.10) =.0325 + .0350 =6.75%,Expected Portfolio Return,Calculation of Expected Portfolio Risk where =the cross-market correlation US2 =U.S. returns variance r w2 =World returns variance,Portfolio Risk Example,What is the risk of a portf

12、olio with 35% invested in Japan with a standard deviation of 6% and a standard deviation of 8% in the U.S. and a correlation coefficient of .7? = (.65)2 (.08) 2 + (.35) 2(.06) 2 +2(.65)(.35)(.08)(.06)(.7) 1/2 =6.8%,INTERNATIONAL PORTFOLIO INVESTMENT,IV.MEASURING TOTAL RETURNS FROM FOREIGN PORTFOLIOS

13、 A.To compute dollar return of a foreign security: or,INTERNATIONAL PORTFOLIO INVESTMENT,Bond (calculating return) formula: whereR$ = dollar return B(1) = foreign currency bond price at time 1 (present) C = coupon income during period g = currency depreciation or appreciation,INTERNATIONAL PORTFOLIO INVESTMENT,B. (Calculating U.S. $ Return) Stocks Formula: whereR$ = dollar return P(1)= foreign currency stock price at time 1 D= foreign currency annual dividend,U.S. $ Stock Returns:Sample Problem,Suppose the beginning stock price if FF50 and