搜索
InternationalPortfolioTheoryandDiversification17-2InternationalDiversificationandRisk•Thecaseforinternationaldiversificationofportfolioscanbedecomposedintotwocomponents,thefirstofwhichisthepotentialriskreductionbenefitsofholdinginternationalsecurities.•Thisinitialfocusisonrisk.•Theriskofaportfolioismeasuredbytheratioofthevarianceofaportfolio’sreturnrelativetothevarianceofthemarketreturn(portfoliobeta).•Asaninvestorincreasesthenumberofsecuritiesinaportfolio,theportfolio’sriskdeclinesrapidlyatfirst,thenasymptoticallyapproachesthelevelofsystematicriskofthemarket.•Adomesticportfoliothatisfullydiversifiedwouldhaveabetaof1.0.17-3Exhibit17.1PortfolioRiskReductionThroughDiversification17-4InternationalDiversificationandRisk•Thetotalriskofanyportfolioisthereforecomposedofsystematicrisk(themarket)andunsystematicrisk(theindividualsecurities).•Increasingthenumberofsecuritiesintheportfolioreducestheunsystematicriskcomponentleavingthesystematicriskcomponentunchanged.17-5InternationalDiversificationandRisk•Thesecondcomponentofthecaseforinternationaldiversificationaddressesforeignexchangerisk.•Theforeignexchangerisksofaportfolio,whetheritbeasecuritiesportfolioorthegeneralportfolioofactivitiesoftheMNE,arereducedthroughinternationaldiversification.•Purchasingassetsinforeignmarkets,inforeigncurrenciesmayalterthecorrelationsassociatedwithsecuritiesindifferentcountries(andcurrencies).•Thisprovidesportfoliocompositionanddiversificationpossibilitiesthatdomesticinvestmentandportfolioconstructionmaynotprovide.•Theriskassociatedwithinternationaldiversification,whenitincludescurrencyrisk,isverycomplicatedwhencomparedtodomesticinvestments.17-6InternationalDiversificationandRisk•Internationaldiversificationbenefitsinduceinvestorstodemandforeignsecurities(thesocalledbuy-side).•Iftheadditionofaforeignsecuritytotheportfoliooftheinvestoraidsinthereductionofriskforagivenlevelofreturn,orifitincreasestheexpectedreturnforagivenlevelofrisk,thenthesecurityaddsvaluetotheportfolio.•Asecuritythataddsvaluewillbedemandedbyinvestors,biddingupthepriceofthatsecurity,resultinginalowercostofcapitalfortheissuingfirm.17-7Exhibit17.2PortfolioRiskReductionThroughInternationalDiversification17-8InternationalizingtheDomesticPortfolio•Classicportfoliotheoryassumesatypicalinvestorisrisk-averse.•Thismeansaninvestoriswillingtoacceptsomeriskbutisnotwillingtobearunnecessaryrisk.•Thetypicalinvestoristhereforeinsearchofaportfoliothatmaximizesexpectedportfolioreturnperunitofexpectedportfoliorisk.17-9InternationalizingtheDomesticPortfolio•Thedomesticinvestormaychooseamongasetofindividualsecuritiesinthedomesticmarket.•Thenear-infinitesetofportfoliocombinationsofdomesticsecuritiesformthedomesticportfolioopportunityset(nextexhibit).•Thesetofportfoliosalongtheextremeleftedgeofthesetistermedtheefficientfrontier.•Thisefficientfrontierrepresentstheoptimalportfoliosofsecuritiesthatpossesstheminimumexpectedriskforeachlevelofexpectedportfolioreturn.17-10InternationalizingtheDomesticPortfolio•Theportfoliowiththeminimumriskalongallthosepossibleistheminimumriskdomesticportfolio(MRDP).•Theindividualinvestorwillsearchouttheoptimaldomesticportfolio(DP),whichcombinestherisk-freeassetandaportfolioofdomesticsecuritiesfoundontheefficientfrontier.•Heorshebeginswiththerisk-freeasset(Rf)andmovesoutalongthesecuritymarketlineuntilreachingportfolioDP.•Thisportfolioisdefinedastheoptimaldomesticportfoliobecauseitmovesoutintoriskyspaceatthesteepestslope.17-11Exhibit17.3OptimalDomesticPortfolioConstruction17-12InternationalDiversificationandRisk•Thenextexhibitillustratestheimpactofallowingtheinvestortochooseamonganinternationallydiversifiedsetofpotentialportfolios.•Theinternationallydiversifiedportfolioopportunitysetshiftsleftwardofthepurelydomesticopportunityset.17-13Exhibit17.4TheInternationallyDiversifiedPortfolioOpportunitySet17-14InternationalDiversificationandRisk•Itiscriticaltobeclearastoexactlywhytheinternationallydiversifiedportfolioopportunitysetisoflowerexpectedriskthancomparabledomesticportfolios.•Thegainsarisedirectlyfromtheintroductionofadditionalsecuritiesand/orportfoliosthatareoflessthanperfectcorrelationwiththesecuritiesandportfolioswithinthedomesticopportunityset.17-15InternationalDiversificationandRisk•Theinvestorcannowchooseanoptimalportfoliothatcombinesthesamerisk-freeassetasbeforewithaportfoliofromtheefficientfrontieroftheinternationallydiversifiedportfolioopportunityset.•Theoptimalinternationalportfolio,IP,isagainfoundbylocatingthatpointonthecapitalmarketline(internationallydiversified)whichextendsfromtherisk-freeassetreturnofRftoapointoftangencyalongtheinternationallydiversifiedefficientfrontier.•Thebenefitsareobviousinthatahigherexpectedportfolioreturnwithalowerportfolioriskcanbeobtainedwhencomparedtothedomesticportfolioalone.17-16Exhibit17.5TheGainsfromInternationalPortfolioDiversification17-17InternationalDiversificationandRisk•Aninvestorcanreduceinvestmentriskbyholdingriskyassetsinaportfolio.•Aslongastheassetreturnsarenotperfectlypositivelycorrelated,theinvestorcanreduceri