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International Portfolio Investment: Theory, Evidence, and Institutional Framework

Author

Listed:
  • Sohnke M. Bartram

    (Maastricht University)

  • Gunter Dufey

    (University of Michigan)

Abstract

At first sight, the idea of investing internationally seems exciting and full of promise because of the many benefits of international portfolio investment. By investing in foreign securities, inves-tors can participate in the growth of other countries, hedge their consumption basket against ex-change rate risk, realize diversification effects and take advantage of market segmentation on a global scale. Even though these advantages might appear attractive, the risks of and constraints for international portfolio investment must not be overlooked. In an international context, finan-cial investments are not only subject to currency risk and political risk, but there are many institu-tional constraints and barriers, significant among them a host of tax issues. These constraints, while being reduced by technology and policy, support the case for internationally segmented securities markets, with concomitant benefits for those who manage to overcome the barriers in an effective manner.

Suggested Citation

  • Sohnke M. Bartram & Gunter Dufey, 2001. "International Portfolio Investment: Theory, Evidence, and Institutional Framework," Finance 0107001, EconWPA.
  • Handle: RePEc:wpa:wuwpfi:0107001
    Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on HP; pages: 124 ; figures: included. forthcoming in: Financial Markets, Institutions and Instruments, Vol. 10 (3), August 2001, 85-155
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    File URL: http://econwpa.repec.org/eps/fin/papers/0107/0107001.pdf
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    References listed on IDEAS

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    1. Agmon, Tamir & Lessard, Donald R, 1977. "Investor Recognition of Corporate International Diversification," Journal of Finance, American Finance Association, vol. 32(4), pages 1049-1055, September.
    2. Adler, Michael & Dumas, Bernard, 1975. "Optimal International Acquisitions," Journal of Finance, American Finance Association, vol. 30(1), pages 1-19, March.
    3. Adler, Michael & Prasad, Bhaskar, 1992. "On Universal Currency Hedges," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(01), pages 19-38, March.
    4. Adler, Michael, 1981. "Investor Recognition of Corporation International Diversification: Comment," Journal of Finance, American Finance Association, vol. 36(1), pages 187-190, March.
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    Citations

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    Cited by:

    1. Lee, Hsiang-Tai & Tsang, Wei-Lun, 2011. "Cross hedging single stock with American Depositary Receipt and stock index futures," Finance Research Letters, Elsevier, vol. 8(3), pages 146-157, September.
    2. Lagoarde-Segot, Thomas & Lucey, Brian M., 2007. "International portfolio diversification: Is there a role for the Middle East and North Africa?," Journal of Multinational Financial Management, Elsevier, vol. 17(5), pages 401-416, December.
    3. Fuinhas, José Alberto & Marques, António Cardoso & Nogueira, David Coito, 2014. "Análise VAR dos índices bolsistas SP500, FTSE100, PSI20, HSI e IBOVESPA
      [Integration of the indexes SP500, FTSE100, PSI20, HSI and IBOVESPA: A VAR approach]
      ," MPRA Paper 62092, University Library of Munich, Germany, revised 10 Feb 2015.
    4. HOROBET Alexandra & BELASCU Lucian, 2014. "An Analysis Of The Diversification Potential Of Emerging Markets For International Equity Portfolios In Recent Years," Revista Economica, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 66(5), pages 15-30.
    5. Bartram, Sohnke M. & Taylor, Stephen J. & Wang, Yaw-Huei, 2007. "The Euro and European financial market dependence," Journal of Banking & Finance, Elsevier, vol. 31(5), pages 1461-1481, May.
    6. Panayiotis Alexakis & Anna Vasila, 2010. "Equity Interconnections in Major European Markets," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 109-132.
    7. Thomas Lagoarde-Segot & Brian M. Lucey, 2006. "Portfolio allocations in the Middle East and North Africa," The Institute for International Integration Studies Discussion Paper Series iiisdp141, IIIS.
    8. Adugna Olani, 2016. "Dynamic Capital inflow transmission of monetary policy to emerging markets," Working Papers 1358, Queen's University, Department of Economics.
    9. Poshakwale, Sunil S. & Aquino, Katty Pérez, 2008. "The dynamics of volatility transmission and information flow between ADRs and their underlying stocks," Global Finance Journal, Elsevier, vol. 19(2), pages 187-201.
    10. Hu, Jian, 2008. "Dependence Structures in Chinese and U.S. Financial Markets -- A Time-varying Conditional Copula Approach," MPRA Paper 11401, University Library of Munich, Germany.
    11. Doina Chichernea, 2007. "International Portfolio Investment," Journal of Information Systems & Operations Management, Romanian-American University, vol. 1(1), pages 15-20, Winter.
    12. Wang, Kehluh & Chen, Yi-Hsuan & Huang, Szu-Wei, 2011. "The dynamic dependence between the Chinese market and other international stock markets: A time-varying copula approach," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 654-664, October.

    More about this item

    Keywords

    portfolio investment; international financial markets; diversification; currency risk;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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