1. (Table continues on next slide) Table 12-1 Comparative Sizes of World Equity Markets 2000 Elton, Gruber, Brown, and Goetzman: Modern Portfolio Theory and Investment Analysis, Sixth Edition © John Wiley & Sons, Inc. International Equity Market Size

2. Table 12-1 (continued) Elton, Gruber, Brown, and Goetzman: Modern Portfolio Theory and Investment Analysis, Sixth Edition © John Wiley & Sons, Inc. Continued

3. Table 12-2 Comparative Sizes of Major Bond Markets 1999 Elton, Gruber, Brown, and Goetzman: Modern Portfolio Theory and Investment Analysis, Sixth Edition © John Wiley & Sons, Inc. International Bond Markets

4. Table 12-3 Correlations among Stock Indexes Measured in U.S. Dollars Elton, Gruber, Brown, and Goetzman: Modern Portfolio Theory and Investment Analysis, Sixth Edition © John Wiley & Sons, Inc. Equity Market Correlations

5. Table 12-4 Correlations among Bond Indexes Measured in U.S. Dollars Elton, Gruber, Brown, and Goetzman: Modern Portfolio Theory and Investment Analysis, Sixth Edition © John Wiley & Sons, Inc. Bond Market Correlations

6. Table 12-5 Correlations for Three-Month Bond Indexes Measured in U.S. Dollars Elton, Gruber, Brown, and Goetzman: Modern Portfolio Theory and Investment Analysis, Sixth Edition © John Wiley & Sons, Inc. Bond Correlations in Dollars

7. Elton, Gruber, Brown, and Goetzman: Modern Portfolio Theory and Investment Analysis, Sixth Edition © John Wiley & Sons, Inc. Table 12-6a Risk for U.S. Investor in Stocks 1990–2000

8. Elton, Gruber, Brown, and Goetzman: Modern Portfolio Theory and Investment Analysis, Sixth Edition © John Wiley & Sons, Inc. Table 12-6b Risk for U.S. Investor in Bonds 1990–2000

9. Elton, Gruber, Brown, and Goetzman: Modern Portfolio Theory and Investment Analysis, Sixth Edition © John Wiley & Sons, Inc. Table 12-6c Risk for U.S. Investor in Three- Month Securities 1990–2000

10. Elton, Gruber, Brown, and Goetzman: Modern Portfolio Theory and Investment Analysis, Sixth Edition © John Wiley & Sons, Inc. Table 12-7 Risk from Placing X Percent in a World Index Excluding U.S. Securities and the Rest in U.S. Index 1990–2000

11. Returns from International Diversification  Recent history has favored the U.S. market to foreign markets  Domestic Returned 16.17% as compared to 12.54% before a -2.22% currency loss  An equally weighted portfolio of foreign debt is outperformed by the US  One must pay attention to the correlation between countries Europe is steadily increasing

12. Elton, Gruber, Brown, and Goetzman: Modern Portfolio Theory and Investment Analysis, Sixth Edition © John Wiley & Sons, Inc. Table 12-8a Return to U.S. Investor in Stocks 1990–2000 (percent per annum)

13. Elton, Gruber, Brown, and Goetzman: Modern Portfolio Theory and Investment Analysis, Sixth Edition © John Wiley & Sons, Inc. Table 12-8b Return to U.S. Investor in Bonds 1990–2000 (percent per annum)

14. The Effect of Exchange Risk  The home country has a large affect on all international investments  This is based on the assumption that the returns will be converted back into Dollars, Pounds, etc.  Some of this risk can be hedged based on the expected value  The way to determine the value of these investments is to determine how low expected return must be in order to not benefit from international diversification

15. Elton, Gruber, Brown, and Goetzman: Modern Portfolio Theory and Investment Analysis, Sixth Edition © John Wiley & Sons, Inc. Table 12-9 The effect of Country of Domicile on Mean Return and Risk

16. Elton, Gruber, Brown, and Goetzman: Modern Portfolio Theory and Investment Analysis, Sixth Edition © John Wiley & Sons, Inc. Table 12-10 Minimum Returns on Foreign Markets Necessary for International Diversification to Be Justified

17. Elton, Gruber, Brown, and Goetzman: Modern Portfolio Theory and Investment Analysis, Sixth Edition © John Wiley & Sons, Inc. Table 12-11 Performance Data on Stock Funds

18. Elton, Gruber, Brown, and Goetzman: Modern Portfolio Theory and Investment Analysis, Sixth Edition © John Wiley & Sons, Inc. Table 12-12 Performance Data on Bond Funds

19. Elton, Gruber, Brown, and Goetzman: Modern Portfolio Theory and Investment Analysis, Sixth Edition © John Wiley & Sons, Inc. Table 12-13 Optimal Investment Proportions