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Asset Management

Asset Management. Lecture 17. Outline for today. International Diversification Home bias Performance attribution. Home bias. Home bias Preference for domestic securities Consumption in domestic currencies Information asymmetry Other explanations?. International diversification.

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Asset Management

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  1. Asset Management Lecture 17

  2. Outline for today • International Diversification • Home bias • Performance attribution

  3. Home bias 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. Reminder: Formula for Attribution B: Bogey portfolio P: the managed portfolio

  11. Formula for International Attribution

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

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

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