Asset Management Lecture 17

Outline for today International Diversification Home bias Performance attribution

Home bias Preference for domestic securities Consumption in domestic currencies Information asymmetry Other explanations?

International diversification

Home bias

Portuguese Asset Management Industry (as of Feb 2009) Main Investment Asset allocation

Portuguese Asset Management Industry (as of Feb 2009)

International Performance Attribution Extension to consider additional factors Currency selection Country selection Stock selection Cash and bond selection

International Performance Attribution Foreign return Currency appreciation

B: Bogey portfolio P: the managed portfolio Reminder: Formula for Attribution

Formula for International Attribution

Reminder: Formula for Attribution Contribution from asset allocation Contribution from security selection Total contribution from asset class i

Formula for International Attribution Contribution from country allocation Contribution from stock selection Total contribution Contribution from currency selection

EAFE Index The Europe, Australasia, and Far East Index from Morgan Stanley Capital International. An unmanaged, market-value weighted index designed to measure the overall condition of overseas markets. from the perspective of a North American investor

EAFE Index As of , the weight of the stocks from the various regions was as follows: Europe (excluding United Kingdom) % United Kingdom % Japan % Asia-Pacific (excluding Japan) 8.465%

Example Total performance

Example Attribution to Currency Selection

Example Attribution to Country Selection

Example Attribution to Stock Selection

Example Summary of performance attribution Overall Performance : -0.1% Currency Selection: -1% Country Selection:-0.25% Stock Selection:1.15%