International Portfolio Investment: Theory, Evidence, and Institutional Framework

Posted: 16 Jul 2001 Last revised: 10 Dec 2019

See all articles by Söhnke M. Bartram

Söhnke M. Bartram

University of Warwick; Centre for Economic Policy Research (CEPR)

Gunter Dufey

Stephen M. Ross School of Business at the University of Michigan ; Nanyang Technological University (NTU) - Centre for Research in Financial Services (CREFS)

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Abstract

At first sight, the idea of investing internationally seems exciting and full of promise because of the many benefits of international portfolio investment. By investing in foreign securities, investors can participate in the growth of other countries, hedge their consumption basket against exchange rate risk, realize diversification effects and take advantage of market segmentation on a global scale. Even though these advantages might appear attractive, the risks of and constraints for international portfolio investment must not be overlooked. In an international context, financial investments are not only subject to currency risk and political risk, but there are many institutional constraints and barriers, significant among them a host of tax issues. These constraints, while being reduced by technology and policy, support the case for internationally segmented securities markets, with concomitant benefits for those who manage to overcome the barriers in an effective manner.

Keywords: Portfolio investment, international financial markets, diversification, currency risk

JEL Classification: G15, G11, F31

Suggested Citation

Bartram, Söhnke M. and Dufey, Gunter, International Portfolio Investment: Theory, Evidence, and Institutional Framework. Financial Markets, Institutions & Instruments, Vol. 10, No. 3, August 2001, pp. 85-155., WBS Finance Group Research Paper No. 9, Available at SSRN: https://ssrn.com/abstract=276886

Söhnke M. Bartram (Contact Author)

University of Warwick ( email )

Warwick Business School
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Centre for Economic Policy Research (CEPR) ( email )

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Gunter Dufey

Stephen M. Ross School of Business at the University of Michigan ( email )

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Nanyang Technological University (NTU) - Centre for Research in Financial Services (CREFS)

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