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周教授CFA金融课程:2021年CFA一二三级系列课程
Which of the following statements with respect to correlations of international security markets is CORRECT?
A)
The use of historical data will understate the current correlation among assets.
B)
The actions of international investors tend to create lower correlations.
C)
Lower correlations are likely in developed world markets.



The use of historical data will understate the current correlation because correlations have been increasing over time. Higher correlations are common in developed markets. The actions of international investors result in greater capital mobility and higher correlations.

TOP

John Lewis, CFA, and Charlene Birdstrom, CFA, have been called out of retirement by their former employer, Price Williams, Inc. (PWI), to conduct training seminars for newly hired employees in the PWI International Equity Investment Division. Lewis and Birdstrom were asked to take on this project because they each spent 20 years in the area of international equity investments prior to their retirement a few months ago.
During their initial planning meeting, Lewis asked Birdstrom what she thought were the most important issues currently facing international equity investors. Birdstrom commented that the argument against international diversification due to increasing correlations is sure to arise. She states, “The proponents of the argument say correlations have increased over time due to a number of factors, primarily increased free trade and capital mobility, the rise in the number of global corporations, and capital market integration.”
Lewis responds by telling Birdstrom, “I think that the correlations, even if they have increased, are still low enough to justify holding international investments. However, what’s really detrimental to the idea of international diversification is the fact that correlations among markets increase during periods of increased volatility, and then remain elevated. That’s problematic. Of course pessimists also point to specific country returns and argue that diversification is pointless when their chosen market has higher returns. That’s not a valid position as far as I’m concerned.”
Birdstrom thinks it is important to address emerging markets in their seminar. She developed the following exhibit to facilitate discussion:

Exhibit 1 – Emerging Markets Investing

  • Emerging markets crises do not usually spread to developed markets.
  • The inclusion of emerging markets in a portfolio should result in higher expected returns due to their low correlation with developed markets.
  • Although the stand-alone risk of emerging markets may be high, the incremental risk from adding a 15% allocation to an all-stock portfolio should not be unreasonable.
  • Crises in emerging markets are usually more prolonged than in developed markets.

One of the participants at the seminar, Jolee Cardoza, brings up the issue of individual security analysis for firms in emerging markets. She tells the group that she uses a relative value approach to stock valuation, and makes the following assertions about the advantages and disadvantages of using relative value multiples:
  • “One advantage of using a relative value method is that it doesn’t require the subjective projection of cash flows, growth rates, and discount rates.”
  • “Another advantage is that relative value ratios use historical figures and the calculations are easy.”
  • “A disadvantage is that it may be difficult to find comparable companies.”
  • “Even if a comparable company can be identified, it can’t be assumed that the comparable is valued correctly. That’s another drawback of the approach.”
With respect to his comments about the arguments against international diversification:
A)
both are correct.
B)
only one is correct.
C)
both are incorrect.



Lewis’ correlation statement is incorrect. The issue of the stability of correlations among international markets is still unresolved. Although correlations have risen over time, they also appear to increase when volatility increases. This phenomenon occurs due to the econometrics of the correlation measure. Volatility can mask the true correlation. Academic research has found that previously reported increases in correlations during volatile stock markets were manifestations of the volatility and not increases in the true correlations. Lewis’ country-specific comment is correct; just because a country has outperformed in the past does not mean it will continue to do so. No one country will always deliver the best performance. (Study Session 8, LOS 22.g)

Which of the items in Exhibit 1 is least accurate?
A)
Item 1.
B)
Item 2.
C)
Item 3.



Low correlations between markets reduce volatility, but do not directly affect the level of expected return. The inclusion of emerging markets should result in higher expected returns due to their higher expected economic growth, not because they have low correlations with developed markets. (Study Session 8, LOS 22.g)

Which of Cardoza’s assertions about using relative value multiples is least accurate?
A)
Assertion C.
B)
Assertion B.
C)
All of Cardoza’s assertions are true.



Although relative value multiples are easy to calculate, the fact that historical data is used is a disadvantage. Historical data may not be relevant to a company’s future growth prospects. (Study Session 8, LOS 22.g)

All of the following typify emerging market risks EXCEPT:
A)
closed-end mutual fund returns can fluctuate due to changes in investor supply and demand for these instruments.
B)
local governments may restrict the ability to move capital from the country.
C)
free float is low because reverse splits to bolster per share prices occur on a regular basis.



The proportion of stock publicly traded (free float) is frequently low because the government is often the primary owner of most of a company’s stock. (Study Session 8, LOS 22.j)

Which of the following statements regarding the correlation between stock returns and currency movements is CORRECT?
A)
Emerging markets have a negative correlation between local market returns and currency movements.
B)
Both developed and emerging markets have been shown to have a positive correlation between local market returns and U.S. currency movements.
C)
Developed markets have a negative correlation between local market returns and currency movements.



In developed countries, the correlation between local market returns and currency movements is usually negative, whereas in emerging markets, the local market returns and currency returns are usually positively correlated. (Study Session 8, LOS 22.j)

Which of the following statements concerning international investing and global investing is least accurate?
A)
Global investing implies diversification across industries as well as countries.
B)
International investing is principally concerned with diversification across countries.
C)
There is no difference between global and international investing.



International investing is principally concerned with diversification across countries, while global investing diversifies across industries as well as countries. However, there is no assurance that international diversification will be achieved under a global investing strategy—it is possible that the fund manager may decide to commit a disproportionate share of assets to a small set of countries, or even entirely to the investor’s home country. (Study Session 8, LOS 22.i)

TOP

Which of the following would be least appropriate for explaining why the benefits of international diversification are overstated?
A)
Global markets have become more segmented.
B)
Corporations have increased their global merger and acquisition activity.
C)
Global trade has increased.



The benefits of international diversification are overstated if the correlations between markets are higher than expected. If markets were segmented, correlations would be lower. The other responses represent causes of increased correlations between markets.

TOP

An analyst examines the correlation of a sample of stock returns and finds that it is 0.60. She then divides the sample in half based on the volatility of stock returns, sample A has the highest volatility and sample B has the lowest volatility. The correlations in sample A and sample B will be, respectively:
A)
both less than 0.60.
B)
lower than 0.60, higher than 0.60.
C)
higher than 0.60, lower than 0.60.



Due to the econometrics of the correlation measure, the correlation will be higher when volatility is higher, even if the correlation structure of the underlying data has not changed.

TOP

Which of the following is NOT a reason why foreign markets have less liquidity than domestic markets?
A)
The market capitalization is lower in foreign markets.
B)
There are government restrictions on the amount of equity that institutions can hold.
C)
The turnover of foreign stock markets is higher due to price manipulation.



Although there is a higher frequency of price manipulation in foreign markets, this does not directly impact turnover. Smaller market capitalizations in these markets, and government restrictions on institutional ownership does limit the liquidity in these markets.

TOP

Which of the following is NOT a barrier to investing in foreign security markets?
A)
Management fees are usually higher in foreign countries.
B)
The high commissions in foreign bond markets.
C)
There is often a lack of familiarity with foreign markets.



The commissions in foreign bond markets are usually quite low. However, there is a lack of familiarity with foreign markets and usually higher management fees, both of which will create barriers to foreign investment.

TOP

Which of the following statements regarding foreign security markets, relative to U.S. security markets is least accurate?
A)
Management fees are usually higher due to the costs of data, research, accounting, and communication.
B)
Government restrictions are usually higher for bonds than for stocks.
C)
Financial reporting is usually less reliable.



Government restrictions on investing in bonds are usually lower in foreign countries relative to the restrictions for foreign stocks. Management fees are usually higher. Financial reporting in foreign countries is usually less reliable and less timely than in the U.S.

TOP

Which of the following statements regarding foreign security markets, relative to U.S. security markets is least accurate?
A)
Withholding taxes are often assessed.
B)
Insider trading is more vigorously enforced.
C)
Trading costs are usually higher.



Insider trading in foreign markets is usually less vigorously enforced. Trading costs are usually higher, and withholding taxes are often applied.

TOP

Global investing is recommended over international diversification because:
A)
corporations are pursuing conglomerate diversification.
B)
governments impose restrictions on the repatriation of capital.
C)
country factors are not as important for stock returns as they once were.



As corporations have become more global, stock returns are more influenced by the industry in which the corporation operates, rather than the country in which the corporation is headquartered. Thus, global investing that diversifies across industries as well as borders, is recommended over traditional international diversification, which diversifies across countries only.

TOP

Global investing refers to diversifying across:
A)
countries.
B)
industries and countries.
C)
industries.



Global investing refers to diversifying across industries as well as countries.

TOP

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