Abstract
With the adoption of flexible exchange rates in 1973, international capital markets have become more completely integrated. This chapter discusses portfolio selection of international equities, and how international diversification lowers total risk of portfolios. Particular attention is paid to the diversification implications of Asian stocks, other emerging markets, and Latin American securities. The US equity selection model developed and estimated in Chapter 14 is used to rank global (ex-US) securities, and produces statistically significant information coefficients and excess returns. An investor owns foreign stocks because their inclusion into portfolios produces higher Sharpe ratios than using only domestic securities.
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Guerard, J.B., Schwartz, E. (2007). International Business Finance. In: Quantitative Corporate Finance. Springer, Boston, MA. https://doi.org/10.1007/978-0-387-34465-2_21
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DOI: https://doi.org/10.1007/978-0-387-34465-2_21
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