Question

Use real or hypothetical examples as a way to illustrate your explanation:

- Foreign Market Beta: calculation, uses

Answer 1

In simple terms, beta for foreign market is foreign market beta. According to CAPM(capital asset pricing model), beta is a measure of volatility of stocks' returns as compared to the market returns. Foreign market beta is the estimator of foreign market systematic risk derived from CAPM. For example, if I invest in a foreign market where beta is low, it reduces the beta of my overall portfolio. The global CAPM incorporates foreign exchange risks as well.

The equation is

Ra= Rf + Ba(Rm-Rf)

Ba= beta of security

Ra = return on security

Rf= risk free rate

Rm = expected market return.

The MSCI ACWI Ex-U.S. is typically used as a benchmark to monitor international exposure