Benefits of international diversification

Benefits of international diversification

You, as a financial adviser, are required to prepare a report to a new customer who is risk-averse, already invested in LSE (London Stock Exchange) and intends to enter foreign stock markets. He is particularly interested in NYSE (New York Stock Exchange) and Shanghai Stock Exchange, but which one to be added to his portfolio is yet to be determined.

In your report, you should accomplish the following tasks:

(1)Critically evaluate international stock portfolio investments;

(2) Explain and analyse the characteristics of the two stock markets chosen by the customer and advice on the choice of market for his portfolio;

(3) Develop a financial strategy to maximize the potential return of this investment.


H. Levy and M. Sarnat, 1970, International diversification of investment portfolios, The American Economic Review, Vol 60, (September 1970), pp. 668-675.
K. R. French and J. M. Poterba, 1991, Investor diversification and international equity markets, American Economic Review, Vol. 81, (May 1991), pp.222-226.
P. Chunhachinda, K. Dandapani, S Hamid and A. Prakash, 1997, Portfolio selection and skewness: Evidence from international stock markets, Journal of Banking & Finance, Vol. 21, Issue 2, pp. 143-167.

• In order to answer the question, you need to access the performance of the three stock markets using appropriate method, for instance, standard deviation of returns and Beta from US perspective. The data must be chosen from reliable resources and properly referenced.
• As well as covering the standard textbook approaches you will need to draw information from other theoretical and empirical studies contained within sources such as specialist books and academic journals.
• All information must be fully referenced, and work correctly attributed within the text.