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International Portfolio Investment: Theory, Evidence, and Institutional Framework
Author(s) -
Bartram Söhnke M.,
Dufey Gunter
Publication year - 2001
Publication title -
financial markets, institutions and instruments
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.386
H-Index - 23
eISSN - 1468-0416
pISSN - 0963-8008
DOI - 10.1111/1468-0416.00043
Subject(s) - diversification (marketing strategy) , portfolio , business , political risk , foreign portfolio investment , foreign exchange risk , institutional investor , hedge , portfolio investment , financial economics , currency , investment strategy , application portfolio management , finance , economics , exchange rate , monetary economics , project portfolio management , politics , corporate governance , open ended investment company , microeconomics , return on investment , marketing , law , ecology , biology , management , political science , production (economics) , project management , market liquidity
At first sight, the idea of investing internationally seems exciting and full of promise because of the many benefits of international portfolio investment. By investing in foreign securities, investors can participate in the growth of other countries, hedge their consumption basket against exchange rate risk, realize diversification effects and take advantage of market segmentation on a global scale. Even though these advantages might appear attractive, the risks of and constraints for international portfolio investment must not be overlooked. In an international context, financial investments are not only subject to currency risk and political risk, but there are many institutional constraints and barriers, significant among them a host of tax issues. These constraints, while being reduced by technology and policy, support the case for internationally segmented securities markets, with concomitant benefits for those who manage to overcome the barriers in an effective manner.