Explain the benefits and limitations of international portfolio diversification
Critically evaluate Kim Deal’s claim with reference to appropriate theories and empirical evidence. Explain the benefits and limitations of international portfolio diversification and include real life examples supporting both claims.
Explain the benefits and limitations of international portfolio diversification
Kim Deal, a famous U.S. hedge fund manager, claims that given the U.S. stock market’s spectacular performance,
there would be little reason to have emerging markets exposure in his portfolio and dismisses the idea of international portfolio diversification.
Indeed, many financial economists have proposed that Kim Deal’s claim can be reconciled with behavioral or rational stories (i.e., risk premia).
Nevertheless, critically evaluate Kim Deal’s claim with reference to appropriate theories and empirical evidence. Please use empirical evidences from scholarly articles regarding the topic.
Explain the benefits and limitations of international portfolio diversification and include real life examples supporting both claims.
Show slight favorism towards having emerging markets exposure in an investor’s portfolio.
Use harvard style refencing and in text citations. e.g (Writer,2021) DO NOT EXCEED 2000 WORDS.
More Details;
An international portfolio is a selection of stocks and other assets that focuses on foreign markets rather than domestic ones.
Also, if well designed, an international portfolio gives the investor exposure to emerging and developed markets and provides diversification.
Understanding the International Portfolio
In addition, an international portfolio appeals to investors who want to diversify their assets by moving away from a domestic-only portfolio.
This type of portfolio can carry increased risks due to potential economic and political instability in some emerging markets.
In conclusion, there also is the risk that a foreign market’s currency will slip in value against the U.S. dollar.
The worst of these risks can be reduced by offsetting riskier emerging-market stocks with investments in industrialized and mature foreign markets.
Or, the risks can be offset by investing in the stocks of American companies that are showing their best growth in markets abroad.