ch09 - Ch9 The Case for International Diversification In...

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9 - 1 In this chapter we cover: The advantages and disadvantages of international investing. Present the traditional case for international diversification. Calculate the expected return & standard deviation for a two- asset portfolio containing a domestic asset and a foreign asset. Demonstrate how changes in currency exchange rates can affect return & risk that investors earn on foreign investments. Discuss global equity market correlations and global bond market correlations. The case for investing in emerging markets. Ch9 The Case for International Diversification
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9 - 2 Exhibit 9.1: Stock Market Capitalization Developed Markets to 2000, all Markets from 2002
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9 - 3 Case Against International Diversification International correlations have trended upward over the past decade. It has also been observed that international correlation increases in periods of high market volatility . Markets that used to be segmented are moving towards global integration .
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