The Le Châtelier Principle in the Markowitz Quadratic Programming Investment Model: A Case of
World Equity Fund Market
As the world is bubbling in the cauldron of globalization, investment in foreign countries ought to
be considered as part of an optimum portfolio. Needless to say, returns from such investment can be
astronomically high as was evidenced by several international equity funds in the period of the Asian flu.
On the flop side, however, it may become disastrous as political system and exchange rate market
undergo structural changes.
The last decade has witnessed a substantial increase in international
investments partly due to “hot money” from OPEC, People’s Republic of China and various types of
quantum funds, many of which are from the US.
From the report of Morgan Stanley Capital International
Perspectives, North America accounted for 51.6% of would equity market.
Most recently, however,
European Union begins to catch up with the US.
Along with booming Asian economies, Russia, India
and Brazil are making headway into world economic stage.
In addition, Japanese economy has finally
escaped from the decade-long depression.
Obviously, the opportunities in terms of gaining security
values are much greater in the presence of international equity markets.
Unlike high correlation between domestic stock markets (e.g., 0.95 between the New York Stock
Exchange and the S&P index of 425 large stocks), that between international markets is rather low.
example, correlations between the stock indexes between the US and Australia, Belgium, Germany,
Hong Kong, Italy, Japan and Switzerland were found to be 0.505, 0.504, 0.489, 0.491, 0.301, 0.348 and