Homework 15.docx - Homework 15 Ecaterina Nederita Q1 p.531 No Although Hong Stock stocks are much more volatile\/than U.S stocks their systematic

Homework 15.docx - Homework 15 Ecaterina Nederita Q1 p.531...

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Homework 15 Ecaterina Nederita Q1 p.531 No. Although Hong Stock stocks are much more volatile /than U.S. stocks, their systematic component of risk is relatively low because of the low correlation with the U.S. market. The net result is that the systematic risk (beta) of the average Hong Kong stock from a U.S. perspective is only 0.85, compared with a beta of 1.0 for the average U.S. stock. In other words, diversifying into Hong Kong stocks will reduce the riskiness of a portfolio currently concentrated in U.S. stocks. Q3 p.531 Despite increasing integration of national capital markets, they still don't march in lock step. Some economies and, hence, their markets will do better than others at any given time, so having stakes in several countries still spreads risks. Nonetheless, increasing integration could lead to more movement in common risk factors (e.g., real interest rate changes). If so, this will increase the correlation of national markets and decrease the risk- reducing benefits of diversifying internationally. Ultimately, it's an empirical issue, and one that should be
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