1. INTERNATIONAL EQUITY MARKETS
2. Practical Issues

2. Why Go International? • Diversification
If it is good to diversify in domestic markets, it is even better to
diversify internationally.

3. Q: Why does the frontier move in the NW direction?
A: Low Correlations! Low correlations are the key to achieve lower risk.
Empirical Fact #1: Low Correlations
The correlations across national markets are lower than the correlations across securities in most domestic markets.
Return correlations are moderate to low (many lower than .50).
There is a regional effect:
Correlations between neighboring markets tend to be higher: Correlation between the US and Canada is .74; US and Japan is .36. (Data: ).

4. MSCI Indexes: Correlation Matrix (1970-2015)
TABLE X.1
MSCI Indexes: Correlation Matrix ( )
A. European Markets
MARKET
Bel
Den
France
Gerrn
Italy
Neth
Spain
Swed
Switz
U.K.
Wrld
Belgium
1.00
0.59
0.72
0.70
0.54
0.75
0.56
0.55
0.68
0.69
Denmark
0.53
0.48
0.62
0.51
0.49
0.61
0.73
0.57
0.63
Germany
0.78
0.58
0.64
0.71
071
0.50
Netherlands
0.81
0.47
Sweden
0.52
Switzerland
World
International returns correlations tend to be moderate, with an average of 0.45 (Table X.1). Neighboring countries show higher numbers.

5. Empirical fact 2: Correlations are time-varying
International correlations change over time. They can have wild swings.
General finding: During bad global times, correlations go up
=> when you need diversification, you tend not to have it!

6. Empirical fact 2: Correlations are time-varying
Correlations change over time: Also between U.S. stocks, but not as much as international correlation. Note also they are higher!

7. Empirical fact 2-A: Correlations seem to be increasing
Correlations have increased over the last 10 years.
- Germany and France have become the same asset!

8. Empirical fact 2-A: Correlations seem to be increasing
It also true at the domestic level. JPMorgan: “Correlation Bubble”

9. Empirical Fact 3: Risk Reduction
Past 12 stocks, the risk in a portfolio levels off, around 27%. For international stocks, the risk levels off at 12%

10. Empirical Fact 4: Returns Increase
Portfolios with international stocks have outperformed domestic portfolios in the past years. About 1% difference ( ).
Q: Free lunch?
A: In the equity markets: Yes! Higher return (1% more), lower risks (2% less).
Q: How to take advantage of facts 2 and 3?
A: True diversification: invest internationally.

11. Example: Higher Returns - The Case of Emerging Markets (EM)

12. Example: Lower Risk/Higher Returns!
Taken from H. Markowitz’s “A Random Walk Down Wall Street.”

13. Example: Lower Risk/Higher Returns II -The Case of EM

14. Empirical Fact 5: Investors do not diversify enough
Many studies show that domestic investors tend to invest at home. In a 2002 UBS survey, the most internationally diversified investors are Netherlands (62%), Japan (27%) and the U.K. (25%).
=> The U.S. ranks at the bottom of list: only 11%.
More recent data (2010) shows better proportions. For example, the U.K. and the U.S. international allocations are 50% and 28%, respectively.
This empirical fact is called the Home Bias.
Proposed explanations for home bias and low correlations:
(1) Currency risk.
(2) Information costs.
(3) Controls to the free flow of capital.
(4) Country or political risk.
(5) Cognitive bias.

15. • Things have improved. I started teaching this class in 1995
• Things have improved. I started teaching this class in The amount invested internationally by U.S. investors was less than 7%, one of the lowest numbers in the world!

16. • Home bias everywhere: Even for Institutional investors (2013 data)

17. Related Question: What should be your international exposure?
- GDP weighted? => Exposure to US: 25% to 30%

18. Related Question: What should be your international exposure?
- GDP weighted?

19. Related Question: What should be your international exposure?
- GDP weighted?
- Market capitalization weighted?

20. Country Analysis
• Active allocation strategy requires the forecast of changes in macroeconomic variables: currencies, interest rates, and stock markets.
Key variable: Choice of a country (currency).
 But currency forecasting is difficult.
Economists monitor a large number of variables such as
- anticipated real growth (probably major influence on a national mkt.)
- monetary and fiscal policy
- wage and employment rigidities
- social and political situations
- competitiveness

21. Country Risk Definition: Country Risk
Country risk (CR) is the risk attached to a borrower by virtue of its location in a particular country.
Q: Why do we care about CR?
- MNCs make decisions on DFI projects on the basis of NPVs.
- MNCs use discount rates to establish NPV for projects
(the higher the discount rate, the lower the chances of a project to have a NPV>0).
Q: Where do discount rates come from?
A: For projects abroad, a key element is Country risk (CR)

22. Note: CR is different than FX risk
Note: CR is different than FX risk. CR risk can be zero and FX can be huge for a given country. The reverse, though unusual, can also happen.
CR reflects the (potentially) negative impact of a country’s economic and political situation on an MNC’s or an investor’s cash flows.
• Situations that can affect MNC’s Cash flows
- Nationalization of subsidiaries or joint ventures.
- Labor strikes in an industry.
- A political scandal that introduces new laws or regulations.
- New trade restrictions, limiting imports or exports.
Q: Does country risk analysis matter?
A: Look at companies investing in Ukraine and Russia in 2014! Value of Russian assets went down significantly. Global investors, MNCs, bondholders realize the relevance of country risk analysis.

23. International Defaults are not rare
Graph X.1
Sovereign External Debt – Taken from Reinhart and Rogoff (2011) .

24. • Measures to reduce country risk:
- A cap on the total amount invested in a particular country.
- Diversification.
- Credit/Political Risk Derivatives
Diversification and Country Risk (From The Economist, Sep 20, 2014)
After China’s revolution in 1949 HSBC, then a purely Asian bank, lost half its business. Iran’s nationalization in 1951 of the Anglo-Iranian Oil Company’s assets devastated the firm, a precursor of BP.
Modern episodes.
• Repsol (Spain), fell in love with Argentina, leaving it vulnerable when YPF, the firm it bought there, was nationalized in 2012.
• First Quantum, (Canada), had made a third of its profits from a mine that the Democratic Republic of Congo nationalized in 2009.
 Ben van Beurden, the boss of Royal Dutch Shell, recently said diversification is “the only way to inoculate yourself”.

25. • Simple Idea
There are many factors that can influence a country’s economic policies: political, economic, social, etc.
We want to create a global indicator that assesses the likelihood of a (negative) change in a given country’s economic policy.
This indicator, reported as a single number, is called country risk (CR).
Similar to credit risk ratings, CR is usually measured (and reported) as a letter (A=excellent, C=bad) => Letter = Grade
Ideally, CR gives companies and lenders a very good indicator of a country’s likelihood of default.

26. • Credit and Interest Rate Risk for Bonds: Brief Review
Bonds are subject to two types of risk:
1) Interest rate risk (risk associated to changes in interest rates)
2) Credit/default risk (risk associated to the probability of default combined with the probability of not receiving principal and interest in arrears after default)
Credit rating agencies describe (measure) the risk with a credit rating (a letter grade).
Rule: The higher the grade, the lower the yield of the bond (measured as a spread over risk-free rate). (For us, the risk-free rate is the yield of government bonds).

27. • General Idea
From a big data set (with a lot of economic, socioeconomic and political variables and observations), we come up with a single measure (a letter).
• Two approaches to measure CR (and get a grade)
(1) Qualitative – collect data, get an opinion from “experts,” form a “consensus” grade.
(2) Quantitative – collect data, process the data with a computer model, get a grade.
(1) Qualitative Approach: Talk to experts (politicians, union members, economists, etc) to form a consensus opinion about the risk of a country. The consensus opinion becomes the grade.
(2) Quantitative Approach: Start with some quantifiable factors that affect CR. Use a formula to determine numerical scores for each factor. Calculate a weighted average of the factors’ numerical scores. This weighted average determines the final grade.

28. (1) Qualitative Approach is considered “subjective.”
(2) Quantitative Approach is considered (or seems more) “objective.”
We will emphasize the Quantitative Approach.
• Pros
- It is simple
- It allows cross-country and across time comparison.
• Cons
- It is too simple.
- In practice, ratings tend to converge (herding).
- Not a lot of predictive power.
Note: Ideally, rating companies are independent. But, they have incentives to accommodate clients (countries).

29. CR: Is it really a good indicator of economic problems/default?
The lack of predictive power for many crisis is a major criticism.
For example, a month before the 1997 Asia crisis, South Korea was rated as Italy and Sweden. Then, Fitch went from rating Korea as AA- (investment grade) to B- (junk) in one month. Other rating agencies replicated the same dramatic sudden change in Korea’s CR rating.
In early 1998, Fitch justified the situation:
“There were no early warnings about Korea from us or, to the best of our knowledge, from other market participants, and our customers should expect a better job from us.”
Similar sudden downgrades occurred during the recent European debt crisis with Greece, Ireland, Italy, Portugal, and Spain.

30. • Practical use of CR
• We will associate CR to the spread over a base, risk-free rate, say U.S. T-bills. That is, CR influences the interest on the debt issued by a government of a country (and the discount rate on foreign projects!).
Example: Setting yields for Mexico (actually, the Mexican government)
YieldMex = US Treasuries + spread (risk premium, a function of CR)
Data:
Mexico’s grade: BBB -a spread of 140 bps (1.40%) over US Treasuries
YieldMex (US Treasuries yield): 4%
YieldMex = 4% % = 5.40%
Note: This is a USD yield. To translate it to MXN, we can use PPP.
YieldMex (MXN) ≈ YieldMex (USD) + E[st+T].

31. Example (continuation):
YieldMex (MXN) ≈ YieldMex (USD) + E[st+T].
Suppose E[IMEX] = 7% & E[IUS] = 2%. Then,
YieldMex (MXN) ≈ 5.40% + 5% = 10.40%.
If we have a project in Mexico, to calculate the discount rate, the YieldMex becomes the risk-free reference rate. That is,
Discount Rate ProjectMex = YieldMex + project’s risk premium. ¶

32.  What explains the difference between the yields in Germany and Italy
 What explains the difference between the yields in Germany and Italy? Country Risk.

33.  Risk Rating Method (Check list)
• Weighted average of grades for four major aspects of a country:
- Economic Indicators (financial condition)
- Debt management (ability to repay debt)
- Political factors (political stability)
- Structural factors (socioeconomic conditions)
The grades (between 0 and 100) for each factor are a function of “fundamental data.” For example, the economic indicator’s grade depends on GDP per capita, GDP growth, inflation, interest rates, etc.
A specific formula is used to compute the grades. For example,
Score(EI) = α0 + α1 GDP growth + α2 Inflation + α3 Productivity
Regressions and experience will determine the coefficients (α0, α1, α2,...).

34.  Risk Rating Method (Check list)
We expect better GDP growth and lower inflation to have a positive and negative coefficient, respectively.
• Final score (the CR letter) will be determined by a weighted average:
Final Score = wEI Score(EI) + wDM Score(DM) + wPF Score(PF) + wSF Score(SF)
Note: Weights should be non-negative and add up to 1 –i.e., wEI + wDM + wPF + wSF = 1.
Q: Where are the weights and the formulae for the grades coming from?
A: This method seems more “objective,” because it is based on hard economic data, but weights and formula for grades may be “subjective.”
=> CR is more an art, than a science.

35.  The model can deliver different forecasts:
- Short-term
- Medium-term
- Long-term
=> Weights and grades can change depending on your horizon.
For example:
(a) Short-term: More weight to debt management and political factors.
(b) Long-term: More weight to economic indicators and structural factor.
 Each grade is associated with a spread in basis points (bps) over base rate, usually a risk free rate.

36. Note I: A rating of BBB or better is considered “investment grade.”
Note II: A rating of BB or less is considered “junk.” In the U.S., the usual spread of junk debt is between 400 to 600 bps over 1-yr T-bills. Range is very wide: Spreads can go over 2600 bps.
Note III: As time to maturity increases, the spread (in bps) also increases.

37. Example: Spread on government European bonds: Nov 11. 2014.
Higher risk (PIIGS), higher spread! ¶
From MTS Indices:

38. Example: Bertoni Bank evaluates the country risk of country DX.
Short-term Horizon Medium-term Horizon
Factor Weight Grade Weight Grade
Economic
Debt managt
Political
Structural
Total
Short-term ranking: A
Medium-term ranking: BBB
That is, the short-term debt of country DX will get a spread in the bps range, say 93 bps over US Treasuries; while the medium-term debt will get a higher spread, say 128 bps.
Suppose the short-term US Treasuries yield 4% (s.a.). Then, the short-term debt of country DX yields 4% (s.a.) % (s.a.) = 4.93% (s.a.). ¶

39. Example: Country Risk in Practice
Euromoney produces semi-annual country risk analysis of 189 countries using a panel of 400+ experts. Euromoney rates six categories with a score (0 to 100).
• Categories and weights:
Economic performance -30%
Political Risk %
Structural assessment -10%
Debt indicators: Debt/GDP; Debt service/X; & X-M/GDP -10%
Credit rating: Moody’s or S&P’s or Fitch IBCA’s rating -10%
Access to bank finance/Capital markets: Grade from 0 to %
The first three categories are qualitative and the last three categories are (mainly) quantitative.
Based on the weighted average for each country, each country is placed on a Tier (Tier 1=AAA, Tier 5=C). ¶

40. Example: Country Risk in Practice
Euromoney’s experts evaluate each category for each country and grade them from 0 to 100. For example, they look at the category: Debt Indicator (10% weight) and grade it:

41. Example: Euromoney, World Country Risk February 27, 2017
World Country Risk weighted average: (B rating or Tier 4)

42. Example: World Composite Risk 1986

43. Example: World Composite Risk 1997

44. Example: World Composite Risk 2007

45. Example: World Composite Risk 2014

46. Example: Country Risk in Practice
• Euromoney CR ratings
- Congo
2011: (World ranking: 139. In 2001, Congo ranked 180th.)
- Romania
2011: (World ranking: 72. In 2001, Romania ranked 89th.)
- China
2011: (World ranking: 40. In 2001, China ranked 45th.)
- Taiwan
2011: (World ranking: 18. In 2001, Taiwan ranked 28th.)
- Singapore
2011: (World ranking: 6. In 2001, Singapore ranked 14th.)
• As expected, there is a wide dispersion of CR across countries. Ratings, however, tend to be persistent over time.

47.  Other Country Risk Indicators
• Given the lack of predictive power of CR, a single indicator may not be enough. There are other indexes that may be also signal the true riskiness of a country –i.e., they can be correlated with the CR.
• Popular indicators
- A.T. Kearny: Globalizaton Index (it measures a country’s global links) - A.T. Kearny: FDI confidence index (survey of MNFs indicating the likelihood of investment in specific markets).
- World Economic Forum: Global competitiveness index (it uses to indexes to rate growth environment and opportunities).
- Institute for Management Development World Competitiveness index.
- PWC: Opacity Index (it measures the adverse impact of opacity of capital -the cost of borrowing funds- in different countries).
- Heritage Foundation: Index of economic freedom (absence of government obstructions).

48.  Other Country Risk Indicators
• Popular indicators
- Fraser Institute: Index of Economic Freedom
- UNDP: Human Development Index (HDI is a composite index measuring average achievement in life expectancy, education, and standard of living).
- Nord Sud Export (NSE) index (market potential assessment for foreign investor

49.  Other Country Risk Indicators • Popular indicators: Summary
In general, we see countries’ rankings moving in a similar range (say, Japan is between 9 and 28; USA between 1 and 15); but it is not always the case. The economic freedom rankings of Brazil and China create huge intervals for these countries, far away from the others.
Country
Euromoney (2011)
Global’n
(2007) 
GCI -WEF
 (2011)
WCI -IMD
Opacity
 (2009)
Economic Freedom
(2011)
Brazil 41 67 53 44 28 99
China 40 66 26 19 45
138
Japan 25 9 16 22 UK 17 12 10 20 2 14
USA 15 7 5 1 6

50. International Factors in Stock Returns
 Q: What kind of factors explain security returns?
(1) International
(2) Domestic
(3) Industrial
Domestic vs. International Factors
• We want to determine the relative importance of factors.
A: Separately correlate each individual stock with:
i. the world sock index ( international factor)
ii. the appropriate industrial sector index ( international factor)
iii. the currency movement ( international factor)
iv. the appropriate national market index ( domestic factor)

51. Example: We regress each individual stock against each factor and obtain its R2.
Average R2 of Regression on Factors
Single-Factor Model All Factors
Market World Indust Curren Domestic
Belgium
Germany
Norway
Spain
Sweden
France
Italy
Netherlands
U.K
U.S
Canada
Australia
Hong Kong
Japan
Singapore
All
=> Domestic factors are the most important.
Currency factor almost negligible (hedging adds value?)

52. • The extent of foreign operations for many MNFs raises the question:
Valuation of MNFs
• The extent of foreign operations for many MNFs raises the question:
Can a portfolio of MNF stocks achieve true international diversification?
A: No!
 MNFs do not provide all the benefits available from direct
investment in foreign securities.
Example: We examined firms from nine countries.
ri = αi + ßUS rUS + ßNL rNL + ßBEL rBEL + ßGER rGER + ...
Nationality Multiple Single
of MNF Index Index
US GER FRA SWI UK R2 beta R2
Amer. MNF
German MNF
French MNF
Swiss MNF
British MNF
Conclusion: MNF stock prices are more affected by domestic factors. ¶

53. Possible explanations:
- National control
- Management policy
- Government constraints

54. International Capital Market Integration
• Integration and The Pricing of Assets
Capital Market Integration: Assets in different currencies or countries display the same risk-adjusted expected returns.
Segmentation: The risk-return relationship in each national market is primarily determined by domestic factors.
• Tests for integration:
(1) Direct: Measure barriers to capital movements. (Be careful with loopholes).
(2) Indirect: Measure stock prices and compare them. (A better measure).

55. Q: Why do we care about International Capital Market Integration?
A: (1) Choice of raising capital in two countries.
(2) If segmentation, international portfolios should display superior risk-adjusted performance.
Country Funds
• Close-end funds (CEF) differ from open-end mutual funds: They neither issue nor redeem shares after IPO. To buy or sell shares, you have to go to the market.
Each CEF provides two market-determined prices:
- The country fund's share price (P) quoted on the domestic market.
- Its NAV determined by prices of the underlying shares traded on the foreign market.
If P < NAV,  closed-end fund sells at a discount.
If P > NAV,  closed-end fund sells at a premium.

56. CEF Puzzle: Domestic closed-end funds, on average, sold at a substantial discount during the 70's and early '80s.
• Country CEF: Investment company that invests in a portfolio of assets in a foreign country and issues a fixed number of shares domestically.
=> Restrictions will raise P relative to its NAV by approximately the amount the marginal domestic investor is willing to pay to avoid them
Example: On January 13, 1989:
The Korea Fund's share sold at a 65% premium.
The Brazil Fund sold at a 35% discount. ¶
Restricted countries like Korea, Thailand and Taiwan sell at a premium. Less restricted countries like Germany and U.K. sell at a discount.

57. Statistics for Premiums for Closed-End Country Funds (1981-1989)
Fund or Portfolio Mean SD ρ1
Brazil
Mexico
France
Germany
U.K
Japan
Korea
Malaysia
Taiwan
Thai
Country Funds
Domestic Funds
Example: The announcement of changes in investment restrictions decreased country fund premiums by an average of 6.8% in recent years.
=> Evidence favors International Market Segmentation: Financial restrictions to foreign investment work.

58. Linkages between Stock Markets
• The moderate to low correlation coefficients are a good argument internationally diversifying portfolios.
• The analysis of correlation coefficients might not be that a correct tool.
Example: Situation:
No movement of capital is allowed between national stock markets.
Common monetary policies induce positive correlations.
In such a case, ex ante, or expected, returns could be very different across markets, even with highly correlated ex post returns. ¶

59. The Crash of October 1987
• Q: Why the October 1987 Crash is important?
A: Only month during the 1980's where all the stock markets around the world moved in the same direction.
• Q: How did the Crash start?
A: The crash started in non-Japanese Asian countries and continued through European markets, the U.S. and finally Japan.
The following Table reproduces the daily returns during the Pre-Crash Period, the Crash Period and the Post-Crash Period by Country

60. Daily Returns (percent/day) by Country
Australia (0.850) (8.315) (1.216)
Hong Kong (1.121) (12.072) (1.353)
Japan (1.274) (5.567) (0.946)
Malaysia (1.171) (6.026) (2.754)
N. Zealand (1.091) (5.296) (1.366)
Singapore (1.075) (10.182) (1.327)
Austria (0.736) (1.663) (0.557)
Belgium (0.814) (4.316) (0.965)
France (0.920) (4.568) (1.254)
Germany (1.251) (4.178) (1.292)
Italy (1.017) (3.184) (1.149)
Netherlands (0.993) (5.296) (1.301)
Spain (1.276) (3.286) (0.927)
Sweden (1.009) (4.534) (1.242)
Switzerland (0.917) (5.409) (1.305)
U.K (0.865) (4.947) (0.962)
Canada (0.689) (5.413) (0.772)
Mexico (2.509) (6.892) (2.754)
U.S (0.965) (7.253) (1.094)

61. Portfolio insurance and computer systems?
Journalist and politicians blamed the Crash on a variety of source ranging from portfolio insurance to inadequate computer systems.
Finding: Claims totally unfounded. Many studies have found that countries with portfolio insurance crashed less that countries without it.
Futures markets?
The argument seems to be that irrational speculators cause instability.
Finding: Stock markets with related futures markets crashed in the same way as countries without futures exchanges.
Specific event?
Search for a triggering event:
(1) announcement on October 14 of a worse than expected trade balance. (2) poor performance of Asian markets in the week before the Crash.
(3) introduction in the U.S. Congress of anti-takeover legislation.
Finding: Last event is the most persuasive; however, it is difficult to believe that it had such a extraordinary effect in other markets.

62. Speculative bubble?
Eugene Fama, from the University of Chicago, says that the most questionable aspect of 1987 was not the Crash itself, but the incredible market advance during the previous five years.
This apparent behavior has been attributed to a speculative bubble.
Under this view, the most plausible theory for the Crash is that a speculative bubble burst in October 1987.
It is difficult to test this hypothesis. Tests are usually based on autocorrelations.
Finding: Several studies have dismissed it as a plausible explanation for the October 1987 Crash.

63. Q: Can a Crash be avoided?
The immediate consequence of the Crash was a couple of reports by official agencies with recommendations.
The proposed measures include:
1. increase in margin requirements
2. imposition of price limits
3. differential taxing for short and long positions
Finding: There is no evidence that margin requirements or price limits have any impact on stock price volatility.
• Summary:
- The Crash was an international event.
- Countries with different regulations, controls, taxes and trading system.
- All experienced a significant negative shock on October 1987.

64. U.S. opening effect
Use of daily data has a problem: overlapping trading hours.
Difficult for some markets to distinguish:
Common movement (caused by world factors)
Specific movement (caused by domestic factors)
Example: A positive commovement between NY and London (they share 2:30 hours of trading) might reflect common information or the influence of one specific market in the other.
Finding using intradaily data between NY and London: They only affect each other around the time New York is opening (9:30 AM, EST).

65. Big movements, higher correlations
When price changes are big, transaction costs become relatively unimportant. Transaction costs are a barrier for instantaneous arbitrage.
Big price changes will bring world markets together.
Finding: Cross-market correlations tend to be positively correlated with measures of price volatility.

66. Application: High Volatility, Correlations and Portfolio Choice
• The lower the correlation between the assets, the greater are the benefits due to diversification.
Empirical Fact: Recall the “Home bias."
• Changes in correlations will affect the composition of optimal portfolios.
• For the U.S. investor, the benefits of diversification change depending on the state of the volatility structure.
=> When you really want diversification (high domestic volatility), the
benefits are lower (high overseas volatility).
In Table X.7, the correlations between the U.S. and other major markets are calculated for two U.S. regimes: high volatility and low volatility.

68. International Booms and Crashes
Taken from Goetzman (2015). Study of 21 world markets (annual data = 3,470 observation.s)
• Bubbles
Definition: A bubble is defined as a boom followed by a crash.
A crash is a large, rapid decline in market prices.
Q: What is large? A single year (or 3-yrs) of cumulative return of 100%
What is rapid? A a drop of at least 50% over the next 5 years.
- Boom: 8.33% of sample had 100%+ annual growth in 1-yr (72 mkt-yrs)
- After 1-yr % of boom markets crashed
- After 5-yrs % of boom markets crashed.
% of boom markets had at least doubled again.

69. - Boom: 14.06% of sample had 100%+ annual growth in 3-yr (460 mkts)
- After 1-yr % of boom markets crashed
- After 5-yrs % of boom markets crashed
% of boom markets had at least doubled again.
Bust: 2.48% of sample has a -50% annual return in 1-yr
- After 1-yr % of bust markets doubled (10 mkts-years)
- After 1-yr of bust markets crashed again (5 mkts-years)
Conclusions:
- Stock market bubbles are rare.
- The overwhelming proportion of price increases in global markets were not followed by crashes.
Interesting details:
- Long-run return for 21 Developed Mkts ( ): 12% (SD = 31%)
- Long-run return for 20 EM ( ): 11% (SD = 51%)