1. Asset Management Lecture 17

2. Outline for today International Diversification Home bias Performance attribution

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

4. International diversification

5. Home bias

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

7. Portuguese Asset Management Industry (as of Feb 2009)

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

9. International Performance Attribution Foreign return Currency appreciation

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

11. Formula for International Attribution

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

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

14. 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

15. EAFE Index As of 2006-12-31, the weight of the stocks from the various regions was as follows: Europe (excluding United Kingdom) 45.268% United Kingdom 23.712% Japan 22.555% Asia-Pacific (excluding Japan) 8.465%

16. Example Total performance

17. Example Attribution to Currency Selection

18. Example Attribution to Country Selection

19. Example Attribution to Stock Selection

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