International Beta

The definition of International beta’

International beta (often known as “global beta”) is a measure of the systematic risk or volatility of a stock or portfolio in relation to the global market than on the domestic market. The concept of international beta is especially important in large transnational companies in the world whose shares are more closely correlated with the global stock index compared to the benchmark index of equity in their country of residence.

The breaking down of ‘international beta’

Investors can use the basic model of capital asset pricing (capm) to determine the expected return of an asset based on its domestic beta and expected domestic market return. Similarly, the global CAPM can be used to calculate the expected return of an asset based on its global beta and the expected return on the global index, for example, Morgan Stanley world index.

The term “international beta” in the context of Finance or portfolio theory should not be confused with international beta testing, which refers to the testing of software products in international markets.

International and global beta CAPM

As noted above, a global model of capital asset pricing (CAPM) can help investors calculate the expected return of an asset based on its beta international. Global CAPM extends the concept of the traditional model of capital asset pricing (CAPM) by incorporating currency risk factors (as a rule, with foreign currency risk premium).

Global CAPM extends the traditional CAPM equation:

In the international CAPM, in addition to receiving compensation for the time value of money and the prize for the solution to take on market risk, investors are rewarded for the direct and indirect impact of foreign currency. In the ICAPM allows investors to take into account the sensitivity to changes in foreign currency when investors own assets.

Beta international index Morgan Stanley world

Morgan Stanley capital international all country world Index ex-USA (MSCI ACWI ex-USA) can help investors benchmark U.S. and international stocks individually. In ACWE ex-US MSCI provides monitoring at the international level, in addition to the American investment.

Top holdings of ACWI ex-US MSCI as of March 30, 2018 were as follows:

  • Tencent Enterprise

  • Nestle

  • Samsung Electronics Co.

  • Alibaba

  • Taiwan Semiconductor

  • HSBC holdings

  • Novartis

  • Toyota Motor Corp.

  • Roche Enterprise

  • Royal Dutch Shell

  • Common

These funds cover China, South Korea, UK, Japan and Taiwan. Country weights include: Japan (16.78%), UK (11.79%), China (7.6%), France (7.45%), Germany (6.64%) (49.69%).

Investing stocks online advice #investingstocksonline