Chapter: 12 Portfolio Theory & The Benefits of Diversification

Section: 6 International Diversification


  • Opportunities: International equity investing offers greater opportunities than does domestic investing as a larger universe of assets is available for investment.

  • Diversification: International investing offers investors better risk/return trade offs.

  • Low correlations between return indices enable you to diversify. Low correlations are due to i) local monetary and fiscal policies ii) differences in institutional and legal systems iii) regional economic events.



  • Lack of liquidity.

  • Currency controls.

  • Country-specific tax regulations.

  • Less developed capital markets.

  • Exchange rate risk.

  • Lack of information.

  • Difference in Accounting Standards.