Question

If foreign stock markets account for around 90% of total world capitalisation.

Should I invest 90% of my portfolio abroad to get the full benefit of international portfolio diversification?

Answer 1

The Capitalisation is an important economic activity centers around the economic development of all the countries. Every market condition accurately tells the frequency of capital invested by all the firms. What ever be the type namely Perfect, Imperfect, Monopoly nor Oligopolistic competition the Market share in the Stock Exchange are purely manipulated by the mass investment in all business firms.

Total World Capitalization is the percentage of market value of shares holdings of the companies which are listed in the Stock Exchange. The present value of the market values act as a indicator of financial stability of firms and also to calculate its net worth in the form of stock valuation.

In order to get the full benefit of international portfolio diversification, You should evaluate the Portfolio Volatility. This is nothing but the measure of shares sustainability to give maximum yield within the stipulated time period. If foreign markets stock marekts account for 90% of total world capitalisation (given in the case), You can predict the minimum degree of loss to say 10% if we invest, then the Portfolio Volatility will be calculated as 100-10% (predicted loss) which will give 90% predictable gain in the stipulated time. So it equals the 90% of your portfilio which you expected to get the full benefit of international portfolio diversification.

100 is the base number. Likewise this can also be calculated with the parameter for Age factor also. If you are invested in the age of 50, then the Portfolio Volatility can calculated as 100-50 = 50. The value 50 will be percentage of investment in buying the shares in all the Stock Market which gives Total Capitalisation.