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Question

Looking at this Figure 7-4 down below, analyze the comparative levels of risk and return for the various areas of

the world. Can the risk-return tradeoff fully explain the magnitude of the differences in return for these various regions? As an investor, what would you see as the pros and cons of international investment?


Figure 7.4 Investing in Emerging Markets: 1988-2015

The following graph illustrates both the compound annual rate of return and the range of returns of investments in selected developed countries and an emerging-market index.

40.00% 50.00%

45.00% 35.00% 28.71%

30.00% 25.00%

19.05%

0.00% 10.00% 20.00%

15.00% 5.00%

Legend:

Equities for the United States, United Kingdom, and Japan are represented by the MSCI country indexes. Equities for emerging markets are represented by the MSCI Emerging Market Index. Source: The MSCI indexes are used with permission. (The MSCI data contained herein is the property of MSCI Inc. [MSCI]. MSCI, its affiliates, and its information providers make no warranties with respect to any such data. The MSCI data contained herein is used under license and may not be further used, distributed or disseminated (Titman, 20170109)

Titman, S., Keown, A. J., Martin, J. D. (20170109). Financial Management, 13th Edition [VitalSource Bookshelf version]. Retrieved from vbk://9780134417509

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