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Global Investments: Managing Risks for Higher Returns

Learn about the benefits of global investments, including larger opportunity sets, efficient portfolios, and higher returns. However, be aware of additional risk factors like foreign exchange rates and parameter estimation risks. Address information asymmetry and agency problems.

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Global Investments: Managing Risks for Higher Returns

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  1. Global Investment: Risk Management Chenghsien Tsai Department of Risk Management and Insurance National Chengchi University

  2. The Benefits of Global Investments • Larger Investment Opportunity Sets • More efficient portfolios • Higher returns and/or less risk

  3. However • Involve one additional risk factor: foreign exchange rate • Parameter Estimation Risk (not to mention model risk)

  4. Exhibit 1 in Eichhorn, Gupta, and Stubbs (1998)

  5. Exhibit 3

  6. Exhibit 5

  7. Exhibit 6

  8. Exhibit 8

  9. More Concerns • Information Asymmetry • Agency Problems

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