International Investment, Portfolio Theory, and International Trade Financing

John N. Kallianiotis

Chapter Chapter 4 in International Financial Transactions and Exchange Rates, 2013, pp 137-180 from Palgrave Macmillan

Abstract: Abstract The internationalization of the financial market had increased investment opportunities in different countries during the last thirty years, but, we ignored, or pretended not to see, the creeping risks due to deregulations, innovations such as “toxic” financial derivatives, and rivalries among powerful nations. Many investors from all over the world starting investing abroad to seek high returns but ignored the hidden risks. International investment, based on international diversification and the existing negative correlation among the world economies, was expected to be efficient, at least in theory. Also, the cross-listing of equities on foreign stock exchanges increased the availability of international financial assets, and the exhortations to simple people around the world to withdraw their money from banks and buy securities (i.e., disintermediation) and even to sell real assets and buy stocks with an expected return of more than 30% [E(R) = 30%] were all actions that created an artificial bull market, or bubble. Recently, all of these inexperienced neoinvestors lost their entire wealth.1

Keywords: Exchange Rate; Foreign Currency; Stock Index; Portfolio Theory; International Portfolio (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-35693-2_4

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DOI: 10.1057/9781137356932_4

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