SuggestedEndofCHAPTER13Solutions - CHAPTER 13 INTERNATIONAL...

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CHAPTER 13 INTERNATIONAL EQUITY MARKETS SUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Exhibit 13.11 presents a listing of major national stock market indexes as displayed daily in the print edition of the Financial Times . At you can find an online tracking of these national stock market indexes that shows performance over the last five trading days. Go to this website and compare the performance for several stock market indexes from various regions of the world. How does the performance compare? What do you think accounts for differences? Answer: This question is designed to provide an intuitive understanding of the benefits from international diversification of equity portfolios. Over different time periods, different market forces will affect each national market in unique ways. Some markets will have yielded a positive return and others a negative return. Consequently, since all markets will not have moved in unison, i.e., are not perfectly correlated, international diversification provides volatility reduction to the portfolio investor. 2. As an investor, what factors would you consider before investing in the emerging stock market of a developing country? Answer: An investor in emerging market stocks needs to be concerned with the depth of the market and the market’s liquidity. Depth of the market refers to the opportunities to invest in the country. One measure of the depth of the market is the concentration ratio of a country’s stock market. The concentration ratio frequently is calculated to show the market value of the ten largest stock traded as a fraction of the total market capitalization of all equities traded. The higher the concentration ratio, the less deep is the market. That is, most value is concentrated in only a few companies. While this does not necessarily imply that the largest stocks in the emerging market are not good investments, it does, however, suggest that there are few opportunities for investment in that country and that proper diversification
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This note was uploaded on 03/16/2010 for the course FINANCE 30 taught by Professor Johnputhenpurackal during the Spring '10 term at University of Nevada, Las Vegas.

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SuggestedEndofCHAPTER13Solutions - CHAPTER 13 INTERNATIONAL...

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