文档介绍：Chapter 20 International Portfolio Diversification
The Algebra of Portfolio Diversification
Mean-Variance Efficiency
The Benefits of International Portfolio Diversification
Variances on Foreign Stock and Bond Investments
Home Bias
Summary
Perfect financial markets ...a starting point
Frictionless markets
no government intervention or taxes
no transaction costs or other market frictions
Rational investors with equal access to costless information and market prices
All investors rationally price financial securities
All investors have equal access to costless information
All investors have equal access to market prices
The algebra of portfolio theory
Assumptions
Nominal returns are normally distributed
Investors want more return and less risk in their functional currency
xi = proportion of wealth in asset i, . Si xi = 1
Expected return on a portfolio
E[rP] = Si xi E[ri]
Portfolio variance
Var(rP) = sP2 = Si Sj xi xj sij
where sij = rij si sj
Expected return on a portfolio
E[ri] si
A American % %
J Japanese % %
Example: Equal weights of A and J
E[rP] = xA E[rA] + xJ E[rJ]
= (½)()+(½)()
= , or %
Variance of a portfolio
Correlation
E[ri] si A J
A American % %
J Japanese % %
sP2 = xA2 sA2 + xJ2 sJ2 + 2 xA xJ rAJ sA sJ
= (½)2()2 + (½)2()2
+ 2(½)(½)()()() =
sP = ()1/2 = , or %
Key results of portfolio theory
The extent to which risk is reduced by portfolio diversification depends on the correlation of assets in the portfolio.
Key results of portfolio theory
The extent to which risk is reduced by portfolio diversification depends on the correlation of assets in the portfolio.
As the number of assets increases, portfolio variance es more dependent on the covariances (or correlations) and less dependent on variances.
Key results of portfolio theory
The extent t