Asset Management

Lecture 17

Outline for today

International Diversification Home bias Performance attribution

Home bias

Home biasPreference for domestic securitiesConsumption in domestic currencies Information asymmetryOther 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 factorsCurrency selectionCountry selectionStock selectionCash and bond selection

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International Performance Attribution

Foreign return

Currency appreciation

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Reminder: Formula for Attribution

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Formula for International Attribution

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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

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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 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%

Example

Total performance

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Example

Attribution to Currency SelectioniBipi

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Example

Attribution to Country SelectioniBipi

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Example

Attribution to Stock SelectioniBipi

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Example

Summary of performance attribution

Overall Performance : -0.1%

Currency Selection: -1%

Country Selection: -0.25%

Stock Selection: 1.15%