Question

With reference to the Sharpe ratio, economically, what is the most important reason for allocating a proportion of your portfolio to a broad index fund investing outside Norway?

Answer 1

Most important reason for allocating the fund outside Norway while allocating a proportion of your portfolio into index fund is because it will help in diversification of the risk and hedging against domestic risk associated with the overall index and it will also hedge against the currency risk exposure of Norway domestic currency.

this is dependent upon sharpe ratio which advocates that there should be maximization of Return by minimization of risk through diversification of portfolio which will beat the the risk-free rate of return by high margin.

it also advocates that investment into the international assets would help in gaining through risk hedging of domestic Assets. it will also help in hedging of fluctuations in domestic currency as well so hedging against the domestic currency risk is the most important factor for allocation of a part of index fund into international assets outside Norway.